The Rise of SPACs: IPO Disruptors or Blank Check Distortions?

Special Purpose Acquisition Companies (SPACs) have been very popular the last few years for taking companies public.  In this article Dr. Aswath Damodaran, Professor of Finance at the Stern School of Business at NYU, and leading authority on investment valuation, provides a detailed explanation of SPACs, and shows that much of the benefits go to the SPAC sponsor or creator.  As with many innovations in finance, a healthy dose of skepticism is often an investor’s best defense.

What is a SPAC?

The attention that SPACs have drawn over the last few months may make it seem like they are a new phenomenon, but they have been around for a long time, though not in the numbers or the scale that we have seen in this iteration. In fact, “blank check” companies had a brief boom in the late 1980s, before regulation restricted their use, largely in response to their abuse, especially in the context of "pump and dump" schemes related to penny stocks. 

To read the full article by Dr. Aswath Damodaran, click here.