Incentive Structure of Special Purpose Acquisition Companies

Abstract

Special Purpose Acquisition Companies (‘SPACs’) are shell companies that are set up with the purpose of raising financing from capital markets in order to acquire and/or merge with a business. Although the idea behind SPACs is similar to private equity funds, their financing and investment methods, investor safeguards and incentive structures differ considerably. This article explains the distinctive features of SPACs and discusses the SPAC incentive structure especially with regard to management compensation schemes and value dilution problems affecting investors.