A special purpose acquisition company ("SPAC") is a company formed with a blank check to effect a merger, share exchange, asset acquisition, or other business combination transaction with an unidentified target. SPACs are typically formed by sponsors who believe that their experience and reputation will aid in the formation of a successful business combination and public company. SPACs are frequently sponsored by investment banks in collaboration with a leader in a specific industry (manufacturing, healthcare, consumer goods, etc.) with the specific intent of effecting a transaction in that industry.

With shareholder approval, a SPAC typically has 24 months to complete a business combination. However, it can extend that time by up to one year. If a business deal doesn't happen in the time frame that was set, all of the escrow funds are returned to the shareholders and the sponsors lose their money.

The value of the acquisition target is negotiated by the sponsor, the target, and any new investors putting money in at the closing (the closing PIPE), and as a result, the valuation of a target entity in a SPAC transaction may be higher than in an IPO. Neither the underwriter nor the IPO company rely on future growth projections in a traditional IPO, and they are almost never included in a registration statement or as part of a road show.