almost 3 years ago • 1 min
Question from Maxi: Since special-purpose acquisition companies (SPACs) are shell companies, why do their share prices sometimes rise before they’ve found a company to merge with?
Answer from Carl: Before a SPAC agrees to merge with another company, it’ll negotiate to get a discount on what the target company’s actually worth. And if, when that deal’s announced, analysts think the target company is worth more than the agreed-upon valuation, the SPAC’s shares should be worth more when the deal is finished. Other investors, then, are more likely to buy in, sending its price up. It’s that future price jump that early investors are betting on when they buy a SPAC’s shares ahead of any deal.
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