How to Invest in a SPAC, Before and After the Merge
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Investing money in the markets can be quite speculative—especially in special purpose acquisition companies. How do you purchase SPAC shares pre-merger? What do you look for in a SPAC to ensure you won’t lose your money, and how are SPAC shares different pre-and post merger? Let's dive in.
How SPAC stock is different pre- and post-merger
Investors can purchase initial shares in the blank-check company for a small amount before its own IPO. These shares generally auto-convert into common shares when the acquisition company hits the market.
When you purchase SPAC shares pre-merger, you get the stock of the blank-check firm. This usually launches around 10 dollars a share. If you go the route of options trading, you also get a partial or full warrant. The proceeds will be placed in an interest-bearing trust. The company then has up to two years to find an acquisition.
Post-merger, you're investing in the company that's merging with the SPAC rather than just the acquisition company.
How to invest in a SPAC before the merger
When looking to purchase SPAC shares before the merger finalizes, you're looking for the same of the blank-check firm. For example, Forbes Media is planning to merge with Magnum Opus Acquisition Ltd. Currently, Magnum Opus is trading on the NYSE under the ticker symbol "OPA." Investors can get common shares of OPA stock now under the presumption the merger will finalize and transfer to a Forbes ticker.
What to look for in a pre-merger SPAC
You can read about each SPAC and its profile on SEC’s EDGAR search tool. The blank-check firms maintain filings on EDGAR, so you can confirm that they have a Definitive Agreement (DA) in place as well as SEC regulatory approval.
You should also take a look at the companies the SPAC is targeting, and see if these businesses have a value that’s three to four times the value of the cash held by the SPAC.
While you're at it, take a look at the SPAC sponsors and their investment track records and reputations. Bear in mind the SPAC’s expiration date; a SPAC has to return its investors’ money if it does not find a merger partner by a certain date.
Pre-merger SPACs come with a certain amount of risk and can be speculative, so you should do your research to determine whether they’re right for you.
How to invest in a SPAC after the merger
Once the SPAC merges with its target company, you can invest in the brand's ticker on the market. For example, blank-check firm Genesis Park Acquisition Corp. just completed its merger with Redwire, meaning the ticker will transition from "GNPK" to "RDW" on the NYSE.
