What is a SPAC?


A special purpose acquisition company (SPAC) is a “blank check” company which enters the public market, much like any other traded stock. However a SPAC company itself is created only to raise capital and acquire an existing private company, which upon approval from shareholders goes through a reverse merger, to take that newly acquired public through the existing SPAC listing. In a way, it’s a way for investors to participate in private equity and get in early on an IPO. For the private company being acquired, this is an alternative from a traditional IPO and offers some benefits like a quicker and cheaper way to go public.

SPACs are formed by a particular sponsor. The sponsor typically has expertise in a particular area of the market and create a charter at filing for the type of business they are looking to acquire.

A SPAC generally has two years to complete a deal (by a “reverse merger”) otherwise it faces liquidation and the shares are refunded at $10 dollar plus interest.

Units, Shares and Warrants


At the time of the IPO, a SPAC will starts with units, which are usually $10 per unit. If the ticker of the SPAC is “ABC,” it will start off trading as “ABCU”, with the “U” at the end standing for Unit.
Units consistent of one share of stock and a fraction of a warrant to purchase the stock. Which are usually exercisable at $11.50.

Several weeks after the IPO, Warrants can be split into units and common shares. After the split, “ABCU” may continue to trade as a Unit (depending on the SPAC), and the shares “ABC” and the warrants “ABC.WS” can be traded separately. Those who held the units, can have their units replaced with shares and warrants.


Shares rarely go below $10 a share pre-merger. This is because if a deal is not found, the original value ($10 dollars plus interest) will be returned to shareholders. Additionally, if a shareholder does not want to keep the shares before the merger with the target company occurs, they can generally call their broker and get the shares refunded at $10 dollars plus interest. Because of the $10 floor, investors often feel there is less risk with pre-merger SPAC investments. It’s important to note, that after the merger there is no floor with the stock price, and the stock trades just like any other stock.

Some brokerages don’t support units and warrants, and SPACs aren’t available until shares are split from units on those platforms.


A warrant is like a call option but have their own ticker and are traded like a stock. Unlike a call option which corresponds to a 100 shares, a warrant corresponds to only a single share. They provide the owner the right (but not the obligation) to purchase one share of the underlying company at a predetermined price per warrant – typically at $11.50. Most SPAC warrants have five years after a merger to be exercised. If there is no merger or the stock doesn’t reach $11.50, the SPAC warrants expire worthless.

Choosing a SPAC

While the above holds true for most SPACs, individual SPACs are all different and offer different terms. For example, unlike most SPACs, PSTH started trading at 20, not 10. SPACs also have different terms about how warrants are structured. It’s also important to check if the sponsor is putting in their own capital and have “skin in the game”. Some sponsors may be limiting their own risk and passing it on to shareholders, which should keep shrewd investors from getting involved. Arguably the most important factor is the sponsor. Investors should carefully review the sponsor’s background, previous business successes and failures and check if the sponsor has been involved in previous SPACs and how they’ve faired. Investing in SPACs is not only a financial investment but a large investment of confidence in the SPAC sponsor.

This site references only our opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.