Goldman Sachs' guide to the hot SPAC market and why investors should be careful

Bill Ackman, founder and CEO of Pershing Square Capital Management.
Adam Jeffery | CNBC

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For investors wanting to cash in on this year's boom in the so-called blank check companies, Goldman Sachs said look before you leap. 

It's been a mania in SPACs, or special purpose acquisition companies, as businesses shy away from the traditional initial public offering market roiled by the coronavirus pandemic and wild volatility. So far in 2020, there have been 51 SPAC offerings, raising a record $21.5 billion, up 145% from the same period a year ago, according to Goldman.

Last month, Bill Ackman's Pershing Square Tontine Holdings raised $4 billion to become the largest SPAC in history. Other notable SPAC acquisitions this year include Nikola and DraftKings.

A SPAC is a blank-check company formed to raise funds to finance a merger or acquisition within a certain time frame, typically two years. The target firm will be taken public through the acquisition. Goldman estimated that completed SPAC offerings currently searching for acquisitions exceeds $38 billion.

Goldman analyzed 56 SPACs that completed translations since the beginning of 2018 and found that in the long run, they tend to underperform the broader market and returns are all over the place.

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