Special purpose acquisition companies, or "SPACs," are publicly traded companies created as vehicles to take private companies public. A SPAC offers securities for cash and the offering proceeds are used to acquire one or more private operating companies.
The SPAC generally has a limited amount of time following the IPO—usually two years—to identify acquisition targets. SPACs are referred to as "blank check companies" because their investors give management discretion to identify and acquire the private companies. Typically, investors can redeem their shares for the purchase price once the target company is identified. Alternatively, the investors become owners of the newly merged company.
SPAC shareholder lawsuits are often filed soon after mergers between SPACs and their target companies (often called "de-SPAC transactions") are announced. These lawsuits, which can take the form of either individual shareholder suits or class actions, typically seek both money damages for actions of the SPAC sponsors as well as injunctive relief to prevent the culmination of the transaction.
The market has tightened as SPACs have grown in popularity. There are currently hundreds of SPACs seeking acquisitions. Even before this tightening, SPACs have been criticized for misaligning sponsor and investor incentives. At Vega, we are closely monitoring market developments as sponsors come under more pressure to locate and secure deals.