Special Purpose Acquisition Companyies (SPACs) have been a major investment theme of 2020. Companies like Nikola Corporation (Nasdaq: NKLA) and Playboy Enterprises are names that have headlined some of the recent SPAC talk. Despite their recent popularity, many investors are still discovering them. Here’s your primer on Special Purpose Acquisition Companies.

A traditional initial public offering (IPO) is a company that has a functioning business and are looking to raise capital to grow their business. That is not the case with SPACs. These companies are raising funds through an offering in order to someday acquire a company. They leave their acquisition targets open, but the area of interest typically matches the expertise of management.

There isn’t a business of any kind, just a management team that is taking stewardship over the funds. It’s this structure that has led SPACs to be referred to as “blank check companies.”

While these entities have been around for many years, they have gained popularity in recent years. In fact, 2019 was a banner year for issuance as SPACs raised a record amount of cash. In 2020, over 50 SPACs have launched and have raised $21.5 billion as of the beginning of August.

Looking at Nasdaq’s IPO calendar, there are five SPAC IPOs set for the first two days of October. These IPOs are set to raise over $2.1 billion. These companies typically price at $10 and trade on the Nasdaq Capital Markets. Here’s a listing of these recent IPOs:

October 1, 2020

Recharge Acquisition Corp. (Nasdaq CM: RCHGU)          

IG Acquisition Corp. (Nasdaq CM: IGACU)          

Altimeter Growth Corp. (Nasdaq CM: AGCUU)

October 2, 2020

AEA-Bridges Impact Corp. (Nasdaq CM: IMPXU)

Since these companies don’t really have a business or even disclose an acquisition target, it leads to a more streamlined process to become a public company. The lack of extensive disclosure requirements should an area of concern for investors.

Many were critical of NKLA for using a SPAC acquisition to become a public company. This allowed them to avoid the scrutiny that was later raised by Hindenburg Research, and which led to their CEO stepping down.

It’s uncertain whether the surge popularity of SPACs is a sign of an aging bull or a path forward. It will take time to sort that out. However, it’s important to be aware of what they are and could be an investment for some speculative investors.