To start, let’s consider what SPACs are and what may be making them popular. A SPAC’s purpose is to raise money in order to merge with an existing private company; it has no business of its own. The strength of the management team—often successful investors themselves—is the key selling feature. After the merger, also known as de‐SPACing, the private company assumes the SPAC’s place as a public company. SPACs typically have two years to complete a deal, or they must return the money to the investors.
The traditional IPO process takes about four to six months, not counting the time that a company spends preparing to start the process, and includes meetings with potential investors, known as a “roadshow,” intended to create demand for the offering and to help set the offering’s price. While the SPAC itself goes through a traditional IPO process, that process is simpler when there is no operating business to evaluate. And the private company that merges with the SPAC can avoid the costly and time‐consuming process altogether by assuming the SPAC’s public company status. Private companies also have considerably more flexibility in talking about, and talking up, their business through the merger process than through the IPO process, adding to the SPAC transaction’s attractiveness.
SPACs are not new, but recently they’ve become a much larger part of the market. About 100 SPAC mergers have been completed since 2018, involving well‐known companies like DraftKings and Virgin Galactic. More than 240 SPACs went public in 2020. SPACs raised $81 billion last year, compared to $100 billion raised by traditional U.S. firm IPOs. And SPACs have dominated the IPO market so far in 2021, raising more than $95 billion and accounting for 70% of all IPOs. In addition to SPACs backed by well‐known financiers, a number of SPACs have debuted with celebrity connections, including Peyton Manning, Shaquille O’Neal, and Jay‐Z.