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.
