Although special-purpose acquisition companies (SPACs) have been
used for decades as alternative investment vehicles, they have
recently come into vogue as seasoned investors and management teams
have turned to SPACs to mitigate the increased market volatility
risk of traditional initial public offerings (IPOs). In fact, 2020
has been a record-breaking year for SPAC IPOs; the proceeds raised
in the first eight months of the year have already more than
doubled those raised in 2019. This surge has primarily been driven
by an influx of high-profile investors and management teams
entering the SPAC space, coupled with an abundance of uninvested
capital that had largely been sitting out in the first half of
2020. However, SPAC transactions come with their own set of unique
challenges, and it is essential for private companies that may be
acquired in such transactions (potential "targets") to
have (1) an understanding of the risks associated with these
investment vehicles and
