A blank check company is a development stage company that has no specific business plan or purpose or has indicated its business plan is to engage in a merger or acquisition with an unidentified company or companies, other entity, or person.
A type of blank check company is a “special purpose acquisition company,” or SPAC for short. A SPAC is created specifically to pool funds in order to finance a merger or acquisition opportunity within a set timeframe. The opportunity usually has yet to be identified. SPACs are also often structured to avoid being legally subject to the additional requirements described in the last paragraph. However, SPACs often incorporate many of the requirements or some derivation of the requirements in order to attract investors.
Retail investors can begin purchasing SPACs as soon as they complete their initial public offering (IPO). Throughout 2020, SPACs frequently listed on the NASDAQ exchange and traded as units, shares, and/or warrants. The units are frequently a security that consists of a common share and a warrant or fractional warrant to purchase a common share. Our SPAC Big Board tracks these details.
Once a SPAC completes its IPO, the funds it raises from the public offering are held in an escrow or private account that the management of the SPAC cannot access. A separate custodian controls these funds on behalf of investors. The SPAC then has a charter from its shareholders to find another company to acquire or merge with. This is know as the business combination deadline. Our SPAC Calendar of Events tracks these details.
Once a SPAC finds a company to merge with, it announces this agreement and provides its shareholders with details about the proposed business combination. The SPAC then must seek approval from both its shareholders and the merger targets shareholders in order to effect the combination. SPAC.observer provides you access to the investor presentations and merger vote dates as part of its premium content.
If a retail investor purchased shares in a SPAC prior to the business combination announcement, they have several options once the business combination is announced. First, they can sell their shares in the public market. Second, they can hold them until the business combination is approved. At that point, the SPAC will issue a Corporate Action and the SPAC’s retail investors can either tender their shares for a specific value or hold their shares and receive new shares in the merged company.
Want to learn more? Read the SPAC Observer Guide to SPAC Profit-making Opportunities and Protections.