A Special Purpose Acquisition Company (SPAC) is a company that takes another private company public by merging with that company.

Why?

This allows the private company to go public without having to go through the red tape of a typical Initial Public Offering (IPO) which makes taking a company public easier.

Why not?

The red tape is there for a reason. Red tape forces companies to go through valuation and standard processes in an effort to protect the consumer from purchasing a potentially “bad” stock. Moreover, the private company pays the SPAC a premium to avoid the headache of a traditional IPO.

In the finance world, SPACs have existed for a long period, but they’ve become mainstream as of late. It’s hard to tell the long term advantages or disadvantages.

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