A special purpose acquisition company (SPAC) is a company that has no commercial operations and is created to raise capital in an initial public offering (IPO) and use the cash to merge with a private company and take it public, usually within two years. According to data from SPAC Research, the market had a record year with more than $160 billion raised in the U.S. stock market in 2021, nearly twice the previous year's level. However, rising inflation, interest rate increases, and the risk of a recession have raised investor concerns among investors, who have pumped roughly $250 billion in SPACs, resulting in a significant decline in SPAC listings in 2022.
In addition, regulators are tightening their scrutiny of SPACs. The Securities and Exchange Commission has opened multiple investigations into SPACs and is recommending tighter rules. According to SPAC Research, nearly 90% of the companies that completed SPAC mergers during 2020 are now trading below the initial listing prices.
