Following a two-year slowdown, Special Purpose Acquisition Companies, or SPACs, have reemerged as a viable option for private companies seeking to access the public markets. Stabilized market conditions and the SEC's 2024 SPAC rules, or the SEC Rules, which seek to enhance investor protections through increased disclosure, have transformed the landscape, creating a more transparent and predictable framework for these transactions.
The second half of 2024 marked a notable inflection point, with 57 SPAC initial public offerings, or IPOs, raising approximately $9.6 billion. The renewed activity reflects increased investor confidence and a more orderly market environment.
A New Phase for SPACs
The SPAC market's revival reflects broader improvements in both market conditions and the regulatory framework. Equity valuations have stabilized, traditional IPO windows have reopened, and the SEC Rules have provided long-awaited clarity on disclosures, liability, and sponsor compensation.
These developments have made SPACs more transparent, predictable, and investor friendly. Sponsors with strong track records are once again launching new vehicles, and institutional investors are returning. Recent transactions feature improved alignment between sponsors and investors and more disciplined deal structures.
Understanding the SPAC Model
A SPAC is a publicly traded shell company typically created to merge with or acquire a private operating business, effectively taking that company public. Sponsors, often experienced executives or investment professionals, raise capital through an IPO and place the proceeds in a trust account.
SPACs typically have 18 to 24 months to complete a business combination. If the SPAC does not identify a suitable target in that time frame, it must liquidate and return capital to investors. Public shareholders may also redeem their shares at the time of the merger if they disapprove of the transaction, while sponsors contribute at-risk capital to fund offering expenses and post-IPO operations.
SPACs Compared with Traditional IPOs
SPACs can offer a faster and more flexible route to the public markets. The process can often be completed in three to four months, which is roughly half the time required for a traditional IPO. Pricing is determined earlier in the transaction, limiting exposure to late-stage market volatility. For many private companies, this speed and predictability are appealing during periods of uncertainty.
However, SPACs are not necessarily less expensive. While underwriting fees are paid in stages and partially contingent on closing, overall costs often rival or exceed those of a conventional IPO once all transaction-related expenses are included.
Disclosure obligations also differ: SPAC proxy materials may include financial projections to inform shareholder votes, but these projections remain subject to the same liability standards that apply to traditional public offerings.
The De-SPAC Transaction
The de-SPAC, or the merger between the SPAC and its target, represents the key transaction phase. Sponsors and targets negotiate a merger agreement, secure any necessary PIPE financing, and seek and obtain shareholder approval. Once the transaction closes, the SPAC must file a "Super 8-K" with the SEC within four business days, providing comprehensive business, financial, and management disclosures about the combined company.
If the SPAC fails to complete a merger within the required time frame, it must redeem all public shares and dissolve. This investor protection mechanism, combined with clearer guidance under the SEC Rules, has restored market confidence.
Looking Ahead
The SPAC market in 2025 is characterized by greater discipline, transparency, and selectivity. Investors are focusing on experienced sponsors with credible track records and clearly defined strategies, while target companies are increasingly mature private companies seeking efficient access to public capital. With enhanced regulatory certainty and a more measured approach to dealmaking, SPACs have reestablished themselves as a viable alternative to traditional IPOs for private companies seeking efficient access to public capital.
If you have any questions regarding the SEC Rules or the current SPAC market environment, please contact the authors, and we would be happy to discuss with you.