Skip to Content

SPACs: Be Careful

Nikola is not the first 'SPAC' to emerge in an explosion of 'strategic' IPOs in 2020. Here's what investors need to know.

Mentioned: , , ,

If you’ve been following IPO news, or stock market news, or any investment news over the past six months, you will have heard references to blank-check companies--special purpose acquisition companies, or SPACs. Most recently, you might have heard about them in the context of General Motors (GM) and Nikola (NKLA).

Here’s the backstory. General Motors made an announcement in September 2020 that it was getting into a “strategic partnership” with Nikola, an electric vehicle company that had not yet manufactured a product. According to the terms of the agreement, GM would receive an 11% equity stake in Nikola in exchange for manufacturing the Nikola Badger pickup truck using GM’s own hydrogen fuel cell and battery technologies.

Ruth Saldanha does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.