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WTIA, WFMC, WTAM, and WTIM are investment advisors registered with the U.S. Securities and Exchange Commission (SEC). Registration with the SEC does not imply any level of skill or training. Additional Information about WTIA, WFMC, WTAM, and WTIM is also available on the SEC's website at adviserinfo.sec.gov.

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Investment Management

Special Purpose Acquisition Companies—A Blank Check for Success?

November 2, 2021

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Special purpose acquisition companies (SPACs) have been around for decades, but in the spring of 2020, they became an extremely popular alternative route for private companies to go public. The subsequent record-breaking surge in SPAC issuance and merger activity that followed was astounding by all measures and led 2020 to be widely dubbed, “the year of the SPAC.” By 2022, though, the overabundance led many SPACs to struggle to identify compelling targets within their investment timeframe and dozens had issued warnings they could go bust within the year. With investor sentiment souring, the usefulness of SPACs as a part of a legitimate portfolio investment strategy was called into question.

In our view, investing in SPACs may still provide a differentiated return stream depending on risk–return objectives, and is best accessed through a low-risk, consistent return strategy. However, as with any investment, it’s important to understand the key features and complexities before diving in headfirst. In this paper, we break down the basics of the SPAC structure, the reasons behind its sudden rise to prominence and subsequent fall from grace, and review how we believe investors should be thinking about SPACs. First, let’s get the lay of the land.

Please see important disclosures at the end of the article.

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