As the stock market continues to experience turbulence due to the ongoing pandemic, investors are starting to look for alternative investment opportunities. One such opportunity is the forward purchase agreement Special Purpose Acquisition Company, or SPAC. In this article, we`ll take a closer look at what a forward purchase agreement SPAC is and how it works.
First, let`s define what a SPAC is. A SPAC is a company that is formed with the sole purpose of raising capital through an initial public offering (IPO) to acquire another company. Essentially, it`s a blank check company that seeks to merge with or acquire another company within a set period of time, typically two years. Once the SPAC acquires a company, the SPAC takes on the identity of the acquired company and goes public.
Now, let`s look at what a forward purchase agreement is. A forward purchase agreement is an agreement between a buyer and a seller in which the buyer agrees to purchase a specific asset at a future date for a predetermined price. In the case of a forward purchase agreement SPAC, the SPAC enters into an agreement with an investor, also known as the forward purchaser, to purchase a specific number of shares in the future at a pre-determined price.
So, how does this work in the context of a SPAC? A forward purchase agreement SPAC is a SPAC that has already raised capital through an IPO and has identified a target company for acquisition. The SPAC then enters into a forward purchase agreement with an investor, who agrees to purchase a certain number of shares in the SPAC once the merger or acquisition is complete. This allows the SPAC to raise additional capital before the merger or acquisition is completed, which can be used to finance the acquisition or for other purposes.
From an investor`s perspective, a forward purchase agreement SPAC can be an attractive investment opportunity. By entering into a forward purchase agreement, investors can secure shares in a SPAC at a predetermined price, which can potentially provide a return on investment if the SPAC`s share price increases following the merger or acquisition. Additionally, investors have the flexibility to sell their shares on the open market or hold them for the long term.
In conclusion, a forward purchase agreement SPAC is a unique investment opportunity that allows investors to secure shares in a SPAC at a predetermined price before a merger or acquisition is complete. While there are risks involved, such as the uncertainty of the acquisition target and potential dilution of shares, this investment vehicle can be an attractive option for those looking to diversify their investment portfolio and potentially generate returns.