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When SPACs Attack: The Role of Special Purpose Acquisition Companies in the M&A Market

October 1, 2007, Michael A. Pittenger, Cara M. Grisin

Special purpose acquisition companies, or SPACs, are publicly traded shell companies that allow their sponsors to raise capital through an initial public offering for use in seeking to acquire an operating company within a fixed time frame. As such, they are a form of “blind pool” without an operating business or revenues. So called “blind pools” and “blank check” companies have a history of being associated with misuse and abuse, but in the past several years SPACs have managed to overcome many of those negative associations and have been steadily on the rise – increasing in both number and size. According to one source, SPACs have filed to raise more than $7 billion in 2007, a 139% increase over 2006, and SPACs accounted for a quarter of all IPOs in the first half of 2007. Although investments in SPACs are subject to many unique risks, the advantages of the SPAC structure tend to appeal to certain sophisticated investors, particularly hedge funds. As the number of SPACs and the funds they are raising continue to increase, SPACs are likely to maintain their growing presence in the M&A landscape.

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