Professional Documents
Culture Documents
Initial public offerings are hot right now, with many high-profile companies
choosing to go public by making their shares available to ordinary investors.
The IPO process, however, can be long and difficult to navigate, with
potential traps for companies that aren't as successful as others in handling
things like road shows and drumming up investor interest.
But there's an interesting alternative that some companies use to get their
shares traded on public exchanges. Rather than filing all the paperwork
associated with the required registration statement with the U.S. Securities
and Exchange Commission, a company can instead merge with another
company that's already public. To take advantage of that rule, some
investors turn to special purpose acquisition companies, also known as
SPACs, whose sole purpose is to raise capital from investors and then look
to acquire an operating business -- often one that's privately held.
After a long hiatus, SPACs are once again becoming more popular. Most
recently, the announcement that the parent company of Chuck E. Cheese
will merge with SPAC Leo Holdings (NYSE: LHC) and return to the public
markets has turned attention back to these investment vehicles. Before you
invest in one, it's important to know what SPACs are and why you're seeing
more of them.
https://www.fool.com/investing/2019/04/12/what-are-spacs-and-why-are-they-back.aspx 1/4
05/03/2021 What Are SPACs, and Why Are They Back? | The Motley Fool
https://www.fool.com/investing/2019/04/12/what-are-spacs-and-why-are-they-back.aspx 2/4
05/03/2021 What Are SPACs, and Why Are They Back? | The Motley Fool
Recently, though, an excess of capital has led investors to seek out merger
and acquisition opportunities more aggressively, and that's led to the return
of SPACs. More SPACs went public in 2018 than in any year since 2007,
raising more than $10 billion in capital for use in searching for investment
opportunities. In particular, private equity funds have become key users of
SPACs, as in the Chuck E. Cheese transaction.
Far from a sure thing
Individual investors should understand that investing in a SPAC isn't a
guarantee of success. When The Wall Street Journal looked at SPACs from
three or four years ago, it found that more than half of them traded below
their initial offering price. Given the huge bull market that investors have
enjoyed, that track record is worrisome.
As long as the IPO market produces victories for companies going public,
then you'll see many businesses opting to go through that process to
generate buzz. But SPACs will also remain a way for investors to bet on a
leadership team's ability to find a smart acquisition. And despite the
potential pitfalls, SPACs will generate interest from those who hope to find
the right acquisition at the right price.
10 stocks that could be the biggest winners of the stock
market crash
When investing geniuses David and Tom Gardner have an investing tip, it
can pay to listen. After all, the newsletter they have run for over a decade,
Motley Fool Stock Advisor, has quadrupled the market.*
David and Tom just revealed what they believe are the ten best buys for
investors right now… And while timing isn't everything, the history of Tom
and David's stock picks shows that it pays to get in early on their best ideas.
See the 10 stocks
*Stock Advisor returns as of February 24, 2021
Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has no
position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
And while Amazon and Netflix have had a good run, we think these 5
other stocks are screaming buys. And you can buy them now for less
than $49 a share!
You can grab a copy of “5 Growth Stocks Under $49” for FREE for
a limited time only.
Click here to learn more.
Learn more
https://www.fool.com/investing/2019/04/12/what-are-spacs-and-why-are-they-back.aspx 4/4