Special-purpose acquisition companies are under the scanner

The US Securities and Exchange Commission (SEC) issued an investor alert, which was the first warning of sorts, when it came to or special purpose acquisition companies (SPACs).

Daily Current Affairs Quiz 2021

A SPAC, or a blank-cheque company, is an entity specifically set up with the objective of acquiring a firm in a particular sector.

The aim of this SPAC is to raise money in an initial public offering (IPO), and at this point in time, it does not have any operations or revenues.

Once the money is raised from the public, it is kept in an escrow account, which can be accessed while making the acquisition. If the acquisition is not made within two years of the IPO, the SPAC is delisted, and the money is returned to the investors.

Certain market participants believe that, through a SPAC transaction, a private company can become a publicly-traded company “with more certainty as to pricing and control over deal terms as compared to traditional IPOs.