SPAC listings hit a record high in 2020 — but what are these 'shell companies'?

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Special purpose acquisition companies — or SPACs — are among the hottest stocks in 2020, but this investment route might run into future challenges.

SINGAPORE — The past year saw a record number of listings by special purpose acquisition companies — better known as SPACs, but these "shell companies" are hardly a modern phenomenon.

Entrepreneurs, hedge fund managers and sports executives are among those who have established SPACs, an increasingly popular method of taking companies public.SPACs are essentially "shell companies" with no actual commercial operations but are created solely for raising capital through an initial public offering to acquire an existing private company.

In this extraordinary year, traditionally-raised capital suffered. SPACs have found the way to inject needed funds into capital-starving companies.Once the funds are raised, they will be kept in a trust, until one of two things happen. Alternatively, if the SPAC fails to merge with a company or does not acquire an existing company within a deadline — typically two years — the SPAC will be liquidated, and investors get their money back.

 

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