Key Takeaways
At Boundev, we track the evolution of capital markets with keen interest. For decades, the traditional initial public offering was the only viable path for private companies seeking to go public. However, Special Purpose Acquisition Companies—commonly known as SPACs—have emerged as a powerful alternative that is reshaping how companies access public capital.
The SPAC phenomenon gained tremendous momentum in recent years, with activity surging again in 2025 as market conditions improved and regulatory frameworks matured. Understanding how SPACs work and whether they align with your company's strategic goals has become essential for founders, CFOs, and board members evaluating exit strategies and growth financing options.
What Is a SPAC and How Does It Work
A Special Purpose Acquisition Company is a publicly traded shell company created specifically to raise capital through an IPO and then use those funds to acquire an existing private company. The process effectively takes a private company public through a merger rather than a traditional underwritten IPO.
1 SPAC Formation
Sponsor team forms the SPAC and typically purchases founder shares at a minimal cost, gaining significant equity stake upon completion.
2 SPAC IPO
The SPAC raises capital from public investors through an IPO, typically with a target raise of $150 million to $500 million or more.
3 Search Period
The SPAC has typically 18 to 24 months to identify and negotiate an acquisition with a target private company.
4 De-SPAC Merger
Shareholders vote on the acquisition, and upon approval, the target company becomes publicly traded through the merged entity.
The entire process—from SPAC formation to completing the merger—typically spans 12 to 24 months, though this can vary significantly based on market conditions and transaction complexity. Unlike a traditional IPO where the company itself goes through the registration process, the private target company merges into the already-public SPAC shell.
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Talk to Our TeamWhy Companies Choose SPACs Over Traditional IPOs
The decision between a SPAC merger and a traditional IPO involves weighing multiple factors. While both routes ultimately result in a publicly traded company, the mechanics and implications differ substantially.
Faster time to market—SPACs can complete the acquisition process in months rather than the year or more typically required for a traditional IPO roadshow and registration.
More flexibility with projections—Historically, SPACs allowed companies to share forward-looking operating plans and targets with less litigation risk than traditional IPOs.
Negotiated valuation—Unlike the book-building process in traditional IPOs, SPAC mergers involve direct negotiation between the sponsor and target company leadership.
Access to sponsor expertise—SPAC sponsors often bring operational experience, industry connections, and strategic guidance to the merged entity.
Strategic Consideration: Companies with complex business models or those operating in emerging sectors may find SPACs more accommodating than the rigorous scrutiny of traditional IPO roadshows. The ability to present detailed operational plans and multi-year projections has historically been more feasible in the SPAC context.
Key Risks and Drawbacks to Consider
While SPACs offer compelling advantages, they also present unique challenges that companies must carefully evaluate. Understanding these risks is essential for making an informed strategic decision.
Shareholder Redemption Risk
SPAC shareholders have the right to redeem their shares for cash if they disagree with the proposed acquisition. High redemption rates can reduce the capital available to the merged company and signal investor skepticism.
Dilution from Sponsor Equity
SPAC sponsors typically receive equity in the merged company as compensation for structuring and completing the transaction. This dilution affects existing shareholders of the target company.
Regulatory and Market Uncertainty
The regulatory environment for SPACs has evolved significantly, with the SEC implementing enhanced disclosure requirements and investor protections in recent years.
SPAC vs Traditional IPO: A Direct Comparison
Evaluating the two pathways requires understanding the key differences in process, cost, and outcomes. The following comparison highlights the critical distinctions.
The optimal choice depends on your company's specific circumstances, growth stage, and strategic priorities. Companies seeking maximum certainty on valuation and timeline may prefer the negotiated SPAC process, while those prioritizing broad market validation might lean toward a traditional IPO. Regardless of the path chosen, building a strong technical foundation becomes critical as you prepare for public market scrutiny.
The Bottom Line
FAQ
What happens if a SPAC fails to find an acquisition target?
If a SPAC cannot complete an acquisition within the specified timeframe (typically 18-24 months), it must liquidate and return the capital held in trust to shareholders. The sponsor loses their investment, and shareholders receive their pro rata share of the trust account, typically at or near the initial $10 per share price.
How is the valuation determined in a SPAC merger?
Unlike traditional IPOs where market demand sets the price through the book-building process, SPAC mergers involve direct negotiation between the SPAC sponsor and the target company. The agreed valuation is then presented to SPAC shareholders for approval. The deal may include an exchange ratio that determines how many SPAC shares target shareholders receive for their company equity.
Can companies still pursue SPACs given the increased regulatory scrutiny?
Yes, SPAC activity has rebounded significantly in 2025 with improved regulatory clarity. The SEC's 2024 rules have provided greater certainty around disclosures and liability frameworks. While the process now more closely resembles traditional IPOs in terms of compliance requirements, SPACs remain a viable alternative for companies seeking a faster path to public markets with more predictable outcomes.