Special Purpose Acquisition Companies (SPACs)

Special Purpose Acquisition Companies (SPACs)

Part of: GS Prelims and GS – III – Economy

In news

• Earlier this month, the US Securities and Exchange Commission (SEC) issued an investor alert, which was the first warning of sorts for special purpose acquisition companies (SPACs).

Important value additions 

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

Indian scenario:

• In India, renewable energy producer ReNew Power last month announced an agreement to merge with RMG Acquisition Corp II, a blank-cheque company.
• It became the first involving an Indian company during the latest boom in SPAC deals.