How is a Special Purpose Acquisition Corporation (SPAC) best described?

A Special Purpose Acquisition Corporation (SPAC) is best described as a shell company created specifically for the purpose of acquiring firms, often within a defined industry or sector. SPACs raise capital through an initial public offering (IPO) and then seek to identify and acquire a private company, bringing it public in the process. This method allows private companies to bypass some of the traditional and more complex routes of going public, such as a direct IPO.

Unlike privately held companies seeking to acquire smaller firms or mutual funds managing investment capital, a SPAC does not have operations or revenue prior to the acquisition. Additionally, it is not a governmental entity that regulates market acquisitions; instead, it operates within the frameworks set by financial regulators but is itself a private investment vehicle. This unique structure focuses on facilitating mergers or acquisitions efficiently, making it a popular choice in recent years for companies looking to enter the public markets.