Known as SPACs, these shell companies allow businesses to sell shares to the public with different disclosure than usual. What could go wrong?
SPAC stands for special purpose acquisition company, the biggest thing in financial markets of the moment. Hundreds of these publicly traded shell companies are being created by everyone from KKR, the leveraged-buyout firm, to Alex Rodriguez, the baseball player turned entrepreneur. Just on Tuesday, the football player Colin Kaepernick filed for his own $250 million SPAC.
These vehicles have only one purpose: to find a private company and buy it, usually within two years. SPACs are sometimes known as “blank check” companies — as in, investors give them a blank check to go buy a business, sight unseen.
Businesses are lining up to sell themselves to SPACs as a way to bypass the more onerous process of an initial public offering. DraftKings, Virgin Galactic and Nikola are among the companies now trading on stock exchanges after merging with SPACs. Some are thriving. Others not so much.
So why is everyone on Wall Street pursuing a SPAC?
Check out the article to review where LUMA CEO Terence Kawaja stands on their viability for investors.