SPAC stocks - the new hot thing in the market
What is SPAC:
A special purpose acquisition company (SPAC) is an entity that's set up as a company with no existing business purpose of its own. Each SPAC make an acquisition of an existing business which are not publicly traded. It does a merger with such an existing business and from then on, the SPAC takes on the identity of the business that it's acquired and gets traded.
VectorIQ the SPAC was trading at around $10 until the news broke out on the Nikola merger and was later trading at $34 on the day before it got listed as Nikola. And on Nikola's listing day, it started trading at over $65 and went all the way close to $90. That's a return of 8X within a span for 3-4 months.
Other examples of SPAC success recently:
- Virgin Galactic Holdings (NYSE:SPCE) in late 2019.
- In April, DraftKings (NASDAQ:DKNG) merged with Diamond Eagle Acquisition
- The trading price post merger could be lower
- The deal could be called off despite the companies confirming initially which means investors have to wait more and price will come down.