The Reemergence of SPACs

More than 125 SPACs have completed IPOs in 2026, and privately held companies have renewed interest in deSPAC transactions. A number of factors have led market participants to reconsider SPACs, including the impact of geopolitical and regulatory uncertainty, inflation, and an IPO market that remains challenging for earlier stage and growth-oriented companies. Below, we provide a brief introduction to SPACs and some of the key considerations for companies evaluating a deSPAC transaction.

How do SPACs Work?

The IPO

A special purpose acquisition company (SPAC) raises capital through an IPO, after which it has a defined period of time (often between 15-24 months) in which to close an initial business combination with a target. IPO investors purchase units, which generally consist of a share and a fraction of a warrant (and sometimes a right). The warrants become exercisable for shares following closing of the business combination, offering potential upside in the post-business combination company. The SPAC’s founders provide additional capital, used to cover IPO expenses and working capital following the IPO, in exchange for warrants or units. The founders also receive shares representing 20-25% of the pro forma equity following the IPO, for a nominal purchase price. The public shareholders may cause the SPAC to redeem their shares prior to closing of the business combination for the IPO purchase price (plus accrued interest) distributed from a trust account funded with the IPO proceeds. If the SPAC fails to close a business combination by the designated deadline, the SPAC liquidates, and pays the public shareholders their pro rata portion of the trust account proceeds.

The deSPAC

Once the IPO closes the SPAC works to rapidly identify a target with which it can enter into and close a business combination prior to its sunset date. These deals are typically documented in a business combination agreement, together with an investor / registration rights agreement. As the SPAC’s public shareholders have a redemption right, the SPAC does not have certainty as to the amount of cash from the trust account it will have at closing to contribute to the transaction consideration. Because of this, deSPACs often include additional capital commitments, either from insiders or from third-party PIPE investors, to provide greater certainty as to the cash available at closing. In virtually all deSPAC transactions, the SPAC shareholders must approve the deal. In most deals, the issuance of shares by the SPAC at closing requires registration on an S-4 or F-4. The target must prepare audited financials in accordance with PCAOB standards, as well as SEC compliant disclosure about its business. The SEC reviews and comments upon the S-4 or F-4, which, together with the proxy solicitation period, can significantly extend the timeline to closing. Once the registration statement is cleared by the SEC and the SPAC shareholders approve the transaction, closing occurs within a matter of days, after which the combined company continues life as a public company.

Some History

SPACs have been around since the 1990s. They first became hot in the mid-2000s, but the market crashed during the 2008 financial crisis after many SPACs failed to complete business combinations and were forced to liquidate. In the years following the financial crisis, although the SPAC market remained largely dormant, several innovations, including decoupling shareholder approval of the business combination from the ability to redeem shares, laid the groundwork for a resurgence. Starting in the mid-2010s the SPAC IPO market began growing rapidly, drawing a diverse and high-quality group of SPAC sponsors. The market then exploded in between 2020-2022, with SPAC IPOs raising an astonishing $162 billion in 2021. This glut of IPOs inevitably created a bubble, with too many SPACs searching for partners within a shrinking target pool. In addition, rising interest rates and inflation dimmed the prospects of many growth-oriented companies that had gone public through a deSPAC, leading to a spate of distressed M&A, restructuring and insolvency. Beginning in 2025 and accelerating in 2026, the market has begun to recover.

When Would You Consider a deSPAC?

A deSPAC will not work for everyone. Though deSPACs are often structured as the acquisition of a target by the SPAC, in many deals the economics more closely reflect the sale of a minority interest in the target to the SPAC shareholders for a combination of cash and shares. Target owners seeking to fully exit a business in the near-term will likely not achieve that aim through a deSPAC. The SPAC shareholder redemption right creates uncertainty as to the level of cash available at closing to finance the business (or to pay out to target shareholders). In addition, target shareholders often find that shares of the combined company have limited liquidity, and may be subject to significant lock-up restrictions. Notwithstanding the foregoing, deSPACs may prove attractive to certain targets and their owners for some or all of the below reasons:

• Continued Control: In most deSPACs target management continues to run the combined company post-closing. For founder led companies, or companies where the management team is heavily invested in the business, a deSPAC may prove appealing.
• Access to Public Markets: In many ways the principal benefit of a deSPAC is taking the target public and gaining a listing on the NYSE or Nasdaq. Listed companies may attract a broader investor base, aided by the visibility provided by ongoing public reporting and analyst coverage. This, in turn, may lead to new capital raising opportunities. Listed shares also increase the appeal of equity-based compensation for employees and provide currency for acquisitions. In May 2026 the SEC published proposed rules that would facilitate capital raising by, among other things, making shelf registration statements on Forms S-3/F-3 available for certain companies immediately upon completion of their deSPAC transaction.¹
• Alternative to an IPO: deSPACs may be viewed as an easier, more certain path to going public than an IPO. In an IPO, valuation is arrived at during the roadshow, which occurs at the end of the process, following SEC review of the registration statement. In a deSPAC, in contrast, the parties determine valuation when the business combination agreement is signed, akin to the timing in a traditional M&A transaction. Furthermore, in an IPO (whether the shares sold are newly issued by the company or sold by existing shareholders) the underwriters must identify new investors to buy the offered shares. In a deSPAC, so long as any minimum cash condition is satisfied, the parties eliminate (or substantially reduce) the need to identify new investors.
• Lower Regulatory Risk: In strategic M&A, transaction review by antitrust authorities and other governmental regulators may pose significant execution risk and add substantial cost to the process. Because SPACs are shell companies with no operations, a deSPAC may present lower regulatory risk than a transaction with a strategic buyer.

Lessons Learned and Looking Ahead

Even though SPAC IPO and deSPAC activity has picked up markedly during 2026, we do not anticipate a return to the frenzied levels of deal-making seen in 2021. Investors learned some tough lessons in the last cycle. We have seen and expect to continue to see more circumspection with respect to valuations, as well as a greater focus on liquidity and access to capital following the deSPAC. Below are some observations about the last cycle and how we expect the deSPAC market to continue to evolve.

• Greater focus on achievability of business plan and on financial performance: Consistent with trends in IPOs, we expect to see the deSPAC market continue to offer opportunities for more mature targets, with track records of achieving recurring revenue and actionable strategies. We also anticipate sustained investor appetite in the same industries that have continued to appeal to investors in the market broadly, such as AI and fintech. In the current climate, investors have less appetite for valuations predicated on future growth.
• Public company readiness: Many targets that completed deSPACs in the last cycle were not ready to go public. In part, this had to do with commercial factors. In addition, many of these companies lacked the internal infrastructure, including accounting, legal, compliance and IR personnel and resources, to satisfy public company obligations. This contributed to ineffective accounting and disclosure controls, which heightened litigation risk, eroding the confidence of shareholders, analysts, and the market generally. We expect that targets considering a deSPAC in the current environment will pay extra attention to building out the resources needed to succeed once public.
• More consideration of earnouts: Given current challenges associated with valuing companies due to ongoing inflation, uncertainty introduced by regional conflicts, and varied outlooks on the U.S. and global economies, we expect that deal parties will continue to give consideration to the use of transaction features like earnouts, that provide additional upside to investors based on the performance of the combined company.

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