What Is A SPAC (Special Purpose Acquisition Company)? Reverse Merger Examples Explained Simply. There is a lot of SPAC news in stock market news recently. Many investors are still confused about what a SPAC (Special Purpose Acquisition Company) is and how it works. SPACs are also known as a blank check companies and used in a reverse merger. Typically in the past a company would do a reverse merger into a shell stock in penny stocks in order to do a pump and dump.
With the recent SPAC news that Alec Gores with his Gores Holdings IV Inc SPAC
turned $25,000 into $80,000,000 with United Wholesale Mortgage, many stock market investors may now want to buy a SPAC IPO. Is a SPAC IPO a good investment? SPACs have gotten mixed reviews.
They have been used by Draftkings and Virgin Galactic Holdings as well as Nikola Motors which has been in the news lately with allegations of fraud and lawsuits against their SPAC sponsor.
Alec Gores has another blank check SPAC named Gores Metropoulos Inc. that introduced a $3.4 billion merger with driverless automobile startup Luminar Technologies Inc. Will Luminar be a good investment or will it be compared negatively to Nikola Motors?
If you want to invest in any of these reverse merger companies you should fully understand how the unit, common stock and warrants work. I try to explain the workings of a Special Purpose Acquisition Company by using very simple examples of a typical SPAC IPO.