A SPAC or “Special Purpose Acquisition Company”

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In 2020, the American stock markets experienced an investment frenzy in this "new" financial tool known as SPAC . In November 2020, the American market had 182 SPACs worth nearly $70 billion compared to 59 in 2019 and 46 in 2018. If the phenomenon is of American origin, it will not have failed to tempt big names in the European market to create their own SPACs. Thus, the former boss of Uni Crédit and the founder of LVMH joined forces to launch their own SPAC to acquire European financial companies.



is a shell company linkedin database listed on the stock exchange that investors fund with the sole purpose of acquiring a company. Once the SPAC is created, it has a time limit of up to 24 months to invest in a firm. If it fails, the funds are liquidated and returned to the investors.



This investment method offers advantages to both investors and companies acquired through this process . On the one hand, and by construction, the SPAC protects the investor in the event of failure by guaranteeing the liquidation of funds. On the other hand, it allows emerging companies to access the financial resources of a stock exchange platform without the constraints of an IPO. Indeed, the acquired company is de facto listed.



This investment vehicle is not without precedent and dates back to the 1920s. In 1926, some trusts had the sole purpose of investing the pooled funds in stocks. There were around 640 of them in 1929 with a capital of 4 billion dollars in assets. According to the author John Kenneth Galbraith, the popularity of this instrument would have led to wild speculation and contributed, by the same token, to the Crash of 1929.



Today, a large number of investors are betting on SPACs even before knowing the acquired company. This is the case of the company GameStop which has benefited from a large interest despite a fragile financial base and low profitability.



The question that remains is: Are we experiencing the beginnings of a new 1929 crisis with the resurgence of this type of investment vehicle?



Loutia Amine, Lecturer-Researcher ESLSCA Business School Paris