Trading
SPAC arbitrage
Buying pre-deal SPACs below trust value to collect the spread and the interest, with redemption as the exit.
Also written: spac arb, merger arbitrage
The trade rests on the redemption right: a holder can force a return of trust value at the next vote, which caps the downside at whatever the trust holds, less the risk that something impairs it.
Returns are modest and rate-sensitive, which is why the strategy attracted large amounts of capital when short rates rose.
Why it matters
This is why pre-deal SPACs cluster so tightly around trust value. Any meaningful discount is competed away quickly.
Related terms
Premium or discount to trust
The difference between the market price and the trust per share, expressed as a percentage.
Redemption
A public shareholder's right to hand back shares for their pro-rata share of the trust, exercisable at a vote.
Trust per share
The trust balance divided by the public shares outstanding, which is the amount a redeeming holder receives.
See the term in the wild: the screener shows trust size, per-share value and deadlines for every U.S. SPAC, and each profile links to the filings the numbers came from.
Definitions describe market practice and are not investment, legal or tax advice.