It’s not yet two months old, but 2021 already looks poised to outdo 2020 in one area: SPACs, or special purpose acquisition companies, raised around $26 billion in January this year in the United States, nearly a third of the record $83 billion collected by 248 SPACs over the whole of 2020. These so-called “blank check” shell companies have no operations or business plan other than to acquire a private company using the money raised through an IPO, thereby enabling the latter to go public quickly.
The SPAC Bubble Is About to Burst
Limited oversight, tons of money, and hype for days. What could go wrong?
February 18, 2021
Richard Drury/Getty Images
Summary.
The rapid proliferation of SPACs — blank check companies raising funds through IPOs in order to acquire private companies — mirrors a pattern seen a decade ago with another controversial M&A practice: reverse mergers. As with reverse mergers, SPACs’ deal quality will fall, attracting intensified media and regulatory scrutiny, and the bubble will burst.