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KiplingerAug 03, 2020
6 SPACs to Buy for 'Smart Money' Returns
The special purpose acquisition company (SPAC) might be the hot new trend, but it has been around since the 1980s.

SPACs are often referred to as "blank check" companies because investors get nothing but a best-efforts agreement from the sponsors' management team that it will combine with an operating business within a specific time frame, usually 18 to 24 months.

Over the years, their popularity has ebbed and flowed, and right now, they're flowing.

Plenty of capital is on the sidelines just waiting to be invested. Demand for traditional initial public offerings has slowed a bit thanks to COVID-19. And entrepreneurs are looking for a faster pathway to the public markets. That combination of factors has made SPACs a natural conduit for deal flow.

But What Exactly Is a SPAC? Without getting too far into the weeds, a person or persons with professional experience in one or more industries goes to investors, hat in hand, asking for capital. They expect to use that capital, along with debt, to acquire an operating business.

SEE MORE 50 Top Stock Picks That Billionaires Love If it sounds a lot like private equity, that's because it is. It's a close cousin along with the leveraged buyout (LBO). As a result, a significant percentage of the SPACs that successfully raise money are sponsored by private equity firms, hedge funds and other "smart money" billionaires. (A sponsor is a group of people who put up the initial capital to form the SPAC before it goes public.)

In return for their small investment, sponsors are issued founders' shares. This amount is typically some nominal figure (often $25,000), issued at $0.002 per share or some other smallish f

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