What is a characteristic of SPACs?

• A. They are formed to acquire debt securities.
• B. They raise money through an initial public offering.
• C. They offer private sales of large block shares only.
• D. They are exclusively for private capital raising.

Answer: (B)

SPACs, or Special Purpose Acquisition Companies, are specifically designed to raise capital through an initial public offering (IPO) with the goal of acquiring an existing company. This process enables the SPAC to take a company public without the traditional and often lengthy IPO process that private firms undergo. When a SPAC goes public, it sells shares to investors, raising funds that will later be used for a merger or acquisition of a target company. This method of capital raising is a defining characteristic of SPACs, as it provides an alternative route for companies to enter the public market.

Regarding other options, the first choice incorrectly suggests that SPACs focus on acquiring debt securities, which is not the primary purpose of these entities. The third choice is incorrect because SPACs do not limit their sales to only large block shares; they invite participation from a broad investor base during the IPO. Lastly, SPACs are not exclusively for private capital raising; instead, they operate as public entities that seek to provide an avenue for private companies to access public funding through the acquisition process. Thus, the correct choice highlights the fundamental role of SPACs in raising money via public offerings to pursue merger opportunities.