SPAC (Special Purpose Acquisition Company)
Definition
A SPAC is a blank-check shell company that IPOs with no operations, placing its proceeds (customarily priced at $10 per unit) in trust, and then hunts for a private company to merge with — the 'de-SPAC' — typically within 18–24 months, or it must return the trust to shareholders.
Mechanics that matter: SPAC IPO units usually include a share plus a fraction of a warrant; the sponsor takes a 'promote' (commonly around 20% of post-IPO SPAC shares for nominal cost); and public shareholders can redeem their shares for trust value rather than participate in the merger. De-SPAC deals are often supplemented with PIPE financing to backstop redemptions and validate valuation.
For the target, a de-SPAC is an alternative route to going public — historically marketed as faster and allowing forward projections in merger proxies — but sponsor promote, warrant overhang, and heavy redemptions can be significantly dilutive. SPAC issuance is highly cyclical, with a boom and bust in the early 2020s followed by tighter SEC rules.
Why interviewers ask
Interviewers use SPACs to test whether you can compare going-public routes and reason about incentives and dilution: 'why might a company de-SPAC instead of IPO, and what are the drawbacks?' Knowing the trust, redemption rights, sponsor promote, and PIPE mechanics — without hyping SPACs as the future — is the mark of a well-calibrated answer.
Related terms
Interviews don't test definitions — they test recall under pressure.
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