A Spec on SPACs, for Professional Traders

By: Montana Timpson

As the 2020 SPAC frenzy rolls into 2021, momentum’s holding strong, with a number of high-profile investors and companies continuing to raise record-breaking funds. SPACs outpaced even traditional initial public offerings (IPOs) last year, raising more than US$83 billion, to IPOs’ US$67 billion.

With an impressive 462% year-over-year jump, SPACs’ accrued proceeds are something of a market maelstrom — to help break down the SPAC frenzy, we’re taking a look at the increase in SPACs, their remarkable gains and how they differ from traditional IPOs. Here’s what professional traders need to know.

SPACs
A special purpose acquisition company, or a “SPAC,” is a company with no commercial operations, formed strictly to raise capital through an IPO for the purpose of acquiring an existing company.

SPACs are often referred to as “blank-check companies,” because in creating a SPAC, founders opt out of identifying acquisition targets to avoid extensive disclosures during the IPO process. This leaves IPO investors in the dark as to which company they are ultimately investing in, but SPACs are generally formed by investors or sponsors with expertise in a particular industry or business sector, with the intention of pursuing deals in that area.

Funding
SPACs are often funded by institutional investors, underwriters and public shareholders. The money SPACs raise in an IPO is placed in an interest-bearing trust account and cannot be disbursed except to complete an acquisition or to return the money to investors if the SPAC is liquidated. Generally speaking, a SPAC usually has about two years to complete a deal, or the fund faces liquidation. Following an acquisition, SPACs are often listed on one of the major stock exchanges.

SPACs in the News
Though the 2020 SPAC frenzy drew a whirlwind of media attention, SPAC IPO fundraising has seen strong growth for a number of years. In 2019, SPAC fundraising hit US$13.6 billion — more than four times what was raised in 2016.

Part of the frenzy stems from big name investors backing SPAC funding, from celebrity figures like Alex Rodriguez and Colin Kaepernick to esteemed banking giants like Goldman Sachs and Deutsche Bank. However, the numbers virtually speak for themselves, with 145 SPACs showing a combined US$46.2 billion raised in 2021 alone, to date.*

Back in October, we tracked the SPAC rally and made note of temporarily dampening sentiment among investors following the summer’s boom — needless to say, SPAC momentum has found itself riding its summer rally once more, continuing strong as 2021 ticks on.

For more professional trading insights, guides and resources, visit Lightspeed’s Active Trading Blog and register now for our next live webinar.

*Data as of Feb. 16, 2021.

The author does not own any SPACs or recent IPOs mentioned in the article.

Active Trading with Lightspeed
Lightspeed provides professional traders with all the tools required to help them find success in stock trading, and we have been developing and honing our active trader platform to offer an optimal user experience. With the intuitive interface layouts and institutional quality stock and options scanners, we aim to help traders reach their goals, no matter what their strategy is. We also offer our clients some of the lowest trading fees in the industry.

For more information on a professional trading platform with Lightspeed, please call us at 1-888-577-3123, request a demo, or open an account.

Data, information, and material (“content”) are provided for informational and educational purposes only. This content neither is, nor should be construed as an offer, solicitation, or recommendation to buy or sell any securities or contracts. Any investment decisions made by the user through the use of such content are solely based on the users’ independent analyses taking into consideration your financial circumstances, investment objectives, and risk tolerance.

You may also be interested in...

Support and Resistance: Technical Analysis Techniques and Advanced Trading Strategies
Read More
The IPOX® Week, April 12th, 2021
Read More
Democracy Is Back in U.S. Stocks
Read More
The 10 Most and Least Popular ETFs in the First Quarter
Read More

Try the demo

Compare Platforms
Check the background of this firm on FINRA's BrokerCheck

Our website uses cookies to improve the performance of our site, to analyze the traffic to our site, and to personalize your experience of the site. You can control cookies through your browser settings. Please find more information on the cookies used on our site in our Privacy Policy. By clicking OK, you agree to allow us to collect information through cookies.

OK