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I. INTRODUCING SPECIAL PURPOSE ACQUISITION COMPANIES
At its simplest, private equity is an investment in an entity that is currently not publicly listed on a major exchange such as the New York Stock Exchange ("NYSE") or NASDAQ.1 As a result, private equity is often subjected to less scrutiny by the public and governing bodies compared to publicly traded securities.2 Traditionally, private companies become publicly listed through an initial public offering ("IPO"), making them available for the common investor.3 IPOs have been the go-to for private companies transitioning to public companies throughout history. However, the past decade has seen Special Purpose Acquisition Companies ("SPAC" or "SPACs") become increasingly popular alternatives year after year, with their own unique benefits and drawbacks.4
SPACs are blank check companies-having no day-to-day operations-that go public with the intention of pooling capital through their IPO to acquire or merge with one or more unspecified companies or assets.5 These targets are typically private companies and as a result become publicly traded.6 The specific acquisition is usually not disclosed until after the SPAC's IPO.7 SPACs represent a low-risk opportunity for investors to enter what would typically be a private equity investment.8 The average investor can purchase a share of a SPAC through their brokerage, close the position by selling the share back, or hold the share through the merger and own a share of the newly-public company.9 The entry is often low-risk as "shareholders vote on whether to accept an acquisition, and individual investors have the right to reject the proposed business acquisition and can redeem their shares for full value."10 In addition, "if the SPAC cannot find a target company in an agreed-upon and allotted time frame, generally 18 to 24 months, the SPAC vehicle is liquidated, and all funds are returned to shareholders."11
The downside is that once an operating entity is acquired and merged with the SPAC, the Securities and Exchange Commission ("SEC") normally does not allow "the typical grace period for many areas of regulatory compliance"-meaning that the merged entity must immediately satisfy various SEC rules and regulations.12
Many companies choose the SPAC route over traditional IPOs because of this simplicity. The traditional IPO process is long and difficult, taking between six months and a year.13 But the SEC rarely...