NOTABLE SPACS

(NKLA): This electric car company is an emerging rival to Tesla (TSLA). After agreeing to a reverse merger with SPAC

VectoIQ in March 2020, the company started trading publicly on June 4th at a price of $37.55—well above the $10 SPAC share price.

(DKNG): The online sports betting leader went public in April 2020 when they merged with a SPAC called Diamond Eagle Acquisition Corporation. As more states legalize online

gambling and betting, DraftKings has the potential to be a leader in a new market. They have announced partnerships with big names like ESPN, Michael Jordan and the Chicago Cubs.

(PSTH): Billionaire hedge funder Bill Ackman’s company debuted as the biggest SPAC ever, raising $4 billion to acquire a “mature unicorn”—meaning a pre-IPO company with a

billion-dollar-plus valuation, big scale and a large market share.

(SPCE): Billionaire Richard Branson’s company offered the first publicly traded space tourism stock when it

merged with a SPAC in October 2019. SPCE soared from the common SPAC price of $10 to an intraday high over $40 in a matter of months, only to be brought crashing back down to earth by the coronavirus market correction.

(RBAC): How about a publicly traded baseball team? This SPAC has been in public negotiations to buy a stake

in the Boston Red Sox’s parent company, Fenway Sports Group, and take the company public. The co-chairman of Redball is Billy Beane, a longtime Oakland A’s executive and subject of the book Moneyball.

A Special Purpose Acquisition Company (SPAC) is a shell company formed with the sole purpose of raising money via an IPO so it can buy an existing business.

Standard price at which most SPAC shares

are initially sold

Time it takes for a private company to go public via SPAC merger

Time that SPACs usually have to buy/merge with a private company before

they are dissolved

MONTHS

MONTHS

Investors aren’t told which company the SPAC intends to acquire, so shareholders must be comfortable not

knowing which company they will potentially own part of. Think of it like you’re giving your money to someone who will

go shopping for you—and you hope you like what they get.

Other than the money raised from selling shares, the SPAC has no day-to-day operations and no revenue. The management of the SPAC usually has expertise in a particular industry and is searching for a company to acquire in that area.

It then goes through a short regulatory and legal process to go public. The original SPAC is then dissolved and delisted from trading, and the private company is now publicly traded under a new ticker symbol.

You can either get your money back before the deal is done or wait and your SPAC stock will convert to

stock in the new public company.

For private companies that want to go public, SPACs function as a backdoor IPO. Rather than partner with an underwriter and go through a lengthy process, they can merge with a SPAC company that is already public and then, within months, become publicly traded.

If the SPAC hasn’t acquired a company 24 months after forming, the money will be returned to SPAC shareholders (plus interest).

The money raised from selling shares is held in a trust account.

Once the SPAC finds a company to buy, you as a SPAC shareholder can decide if

you want in on the deal.

Traditional IPO ProcessT I M E F R A M E : 6 M O N T H S – 1 Y E A R +

Private company decides to go public

Mountains of legal filings and accounting

statements are handed over to government

regulators

Underwriter sets the initial price for the stock

Makes a deal with a financial institution (often a big bank) to underwrite the IPO

Underwriter organizes a road show to drum up interest from other large buyers

On the IPO day, the new stock is now listed on an exchange and shares are sold publicly

Having raised money, the SPAC negotiates with a private company they want to purchase

SPAC is formed by a group looking for a company

to buy

SPAC sells shares and raises capital to buy a

stake in a private company

The deal goes through a quick, less detailed

government approval process

SPAC goes public, trading on an exchange under a ticker symbol

The SPAC stock is delisted and the private company is now publicly traded under a new ticker

h ow d o e s i t wo r k ?vs traditional ipo

SPACS

according to SPAC Insider.

SPACs, or blank check companies, are increasingly popular in the stock market.

S PAC “Backdoor” IPO ProcessT I M E F R A M E : 3 M O N T H S – 4 M O N T H S

O F S PAC sDISADVANTAGES

Buyers pay a pre-IPO price for a stock that could potentially debut higher

Shareholders don’t know which private company they’re ultimately buying

SPAC IPOs generally have a lower rate of return than traditional IPOs

ADVANTAGES

Allows individual investors to act like a hedge fund or private equity fund

T A K E N P U B L I C V I A S PACNOTABLE COMPANIES

62 BILLION

Number of SPAC IPOs

Number of SPAC IPOs

$

SPAC IPOs this year

In fact, there have been

over 160

At IBD, we know IPOs. We have proprietary ratings for over 7,000 stocks and ETFs that lets you know if a stock measures up based on fundamental and technical

analysis. It’s a handy way to know if a flashy stock has the potential for a big run.

With IPOs, we don’t buy the hype—we only buy good stocks.

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raised by SPAC IPOs so far in 2020

C U R R E N T LY LO O K I N GF O R A P U R C H AS E

w h a t i s a

A SPAC raises money by selling shares.

When a SPAC and a private company agree to a merger, the private company receives the money.

S e a r c h i n g fo r t h e n ex t b i g S PAC I P O ?

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