What is a SPAC? The rise of 'blank-check companies,' explained - Business Insider

Meanwhile, the number of blank-check companies filing for IPOs is going up.

For one thing, SPACs take over a lot of the paperwork drudgery and the roadshow grind that usually comes with an IPO.A SPAC raises funds from investors with the explicit goal of buying a business. But before it gets to that, the blank-check firm behaves just like a startup on the path to an IPO. It registers with the Securities and Exchange Commission, files all necessary disclosures, and markets the stock to potential investors in a roadshow. Only then can it list shares.

For an investor, it's not unlike putting money into a bank account. Except, somebody else is going to spend it. The investor can sell off their shares after the acquisition has been announced, if they don't like the deal's potential.The blank-check company's sponsor puts the elbow grease into going public, so the company it acquires doesn't have to make the same effort. That's part of the SPAC's appeal, said Jordan Nof, a founding partner of Tusk Ventures.

Hostess, the owner of Twinkies and Ding Dongs, survived two bankruptcies before its sale to a blank-check company.The private equity firm has a record of success building consumer packaged goods companies. Gores Group's first blank-check company used the proceeds to buy Hostess, the owner of Twinkies, which has survived two bankruptcies to become a $1.5 billion snacktime stalwart.

Unethical to the core but there is no legislation to prevent the practice.

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