SPAC

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SPAC, short for "Special Purpose Acquisition Company," is a unique investment vehicle.

It is a company with no operational business, established to raise funds through an IPO (Initial Public Offering) and use these funds for future merger and acquisition transactions. The goal of SPAC is to acquire private companies and take them public, thus facilitating the process of private companies going public.

The operation of a SPAC is relatively straightforward. Its sole purpose is to raise capital and find a suitable target company for acquisition within a certain timeframe after its establishment.

During the IPO process, SPAC sells units to investors, with each unit typically comprising a certain number of common shares and a certain number of warrants. After raising funds, the capital is held in a trust account, waiting to be used for future merger and acquisition transactions.

Once the IPO is completed, SPAC starts seeking a suitable target company for acquisition. This process may take some time, usually one to two years. Once a target company is identified, and the merger and acquisition transaction is approved, the target company becomes a publicly traded company, replacing SPAC's position.

Let's take a classic example: Nikola Corporation.

Nikola is a U.S. manufacturer of new energy vehicles, founded in 2015. Its primary business involves developing and manufacturing electric trucks and hydrogen fuel cell vehicles.

In 2018, Nikola announced plans to go public through a merger with VectoIQ Acquisition Corp., a SPAC. VectoIQ was founded by former General Motors executive Steve Girsky and specialized in seeking merger opportunities with new energy vehicle companies. The merger was completed in June 2020, and Nikola successfully went public on the NASDAQ stock exchange.

After the merger was completed, Nikola's stock price initially soared. However, over time, doubts and controversies arose, particularly regarding whether the company truly possessed viable technology and products. Subsequently, a series of negative reports and allegations led to a sharp decline in Nikola's stock price.

Here is Nikola Corporation's stock price trend:

  • June 4, 2020: Merger completed, stock listed, closing price at $37.55.

  • June 9, 2020: Stock reached its peak at $93.99.

  • February 10, 2021: After negative reports emerged, the stock price sharply declined to $17.87.

  • July 18, 2023: Closing price at $9.21.

This case fully demonstrates that after a SPAC goes public, the stock price may experience significant fluctuations. For investors, choosing to invest in SPACs requires careful consideration, thorough research, and due diligence. While SPACs provide a relatively quick pathway to public listing, they also come with certain risks. We should approach them with caution and choose SPACs with a good reputation and potential for growth.

The advantage of SPAC lies in providing private companies with a relatively quick and straightforward path to going public. For investors, they can wait and observe after the funds are raised by SPAC until a target company is found, thereby reducing investment risks.

However, investing in SPACs also comes with certain risks. Some SPACs may not be able to find a suitable target company within the specified timeframe, resulting in idle funds. Additionally, once a target company is identified, investors need to conduct in-depth research and due diligence on that company to determine if it is worth investing in.

In summary, SPAC is a special investment tool that offers private companies a relatively fast and straightforward path to going public while providing investors with an opportunity to wait and observe. However, we should approach SPACs with caution, conduct thorough research and due diligence to reduce investment risks.

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