A SPAC merger takes your private company public by combining with a pre-listed shell company. You move through structured phases—SPAC IPO, target search, due diligence, merger agreement, shareholder vote, and de-SPAC closure—typically within 6–9 months.
When you pursue a SPAC merger, you gain a faster path to the public markets than a traditional IPO. This article breaks down the full process step by step, helping you understand what each stage involves, where the risks lie, and how to maximize outcomes in compressed timelines.
How does the SPAC form and raise capital?
The process begins when a sponsor creates a Special Purpose Acquisition Company (SPAC). This entity has no operations—it exists solely to raise money and acquire a target.
Sponsors file an S-1 registration, raise capital through a traditional IPO, and place proceeds into a trust account. They usually retain about 20% of the equity as “founder shares.”
At this stage, your company isn’t yet involved, but these early decisions—sponsor reputation, capital raised, and stated investment focus—set the tone for the eventual deal.
How do sponsors identify and evaluate targets?
Once capital is secured, sponsors have 18–24 months to find a suitable target. They focus on industries aligned with their stated mandate.
As a potential target, you’ll be evaluated based on revenue growth, market potential, and readiness to function as a public company. Sponsors seek businesses that can attract PIPE financing and drive shareholder approval.
Your role here is positioning—maintain financial discipline and build relationships with SPAC sponsors early to increase the odds of selection.
What happens during due diligence and the LOI phase?
After initial discussions, you’ll sign a letter of intent (LOI). This isn’t binding but outlines basic terms like valuation, deal structure, and exclusivity.
The sponsor’s team then conducts due diligence—reviewing financials, contracts, governance, intellectual property, and compliance. For you, this requires a data room, clean audits, and quick responsiveness to queries.
The LOI stage filters out misaligned deals. If both sides are aligned, negotiations advance to a definitive merger agreement.
How is the merger agreement structured?
The merger agreement is the backbone of a SPAC deal. It sets valuation, ownership split, PIPE commitments, redemption terms, and conditions to closing.
Your lawyers and bankers negotiate aggressively here. Minimum cash conditions are critical—without sufficient funds post-redemption, the deal can collapse. PIPE investors often step in to stabilize cash levels.
This stage demands clarity. Over-optimistic projections or weak financial controls are frequent deal-breakers under regulatory and investor scrutiny.
What filings and disclosures are required?
After signing, you must file a proxy statement or registration statement (Form S-4). This document resembles an IPO prospectus, with detailed financials, risk factors, and pro forma data.
Regulators review these filings, often asking multiple rounds of questions. Expect several months of back-and-forth. Your team must be equipped with audit-ready numbers and disclosure controls.
This phase is also when you prepare investor communications. Transparency builds trust and helps reduce shareholder redemptions.
How do shareholder votes and redemptions work?
SPAC shareholders vote to approve the merger. Regardless of their vote, they may redeem their shares for cash held in trust.
High redemptions are common, which is why PIPE financing plays such a vital role. If redemptions exceed expectations, minimum cash requirements may fail.
You must anticipate this risk by cultivating strong PIPE backers, managing your story carefully, and negotiating flexible cash terms.
What happens during closing and the de-SPAC?
Once shareholders approve, the merger closes. The private company becomes the operating entity, trades under a new ticker, and files a “Super 8-K” within four days.
Your operations must now function like a public company: quarterly reporting, internal controls, investor relations, and board oversight.
For founders, this is both the finish line and the starting line—liquidity and visibility arrive, but expectations rise dramatically.
What risks and challenges should you prepare for?
SPACs promise speed, but risks are real. Redemption spikes can strip funding, PIPEs may not materialize, and sponsor dilution often frustrates public investors.
Post-merger, many SPACs underperform traditional IPOs, as seen in high-profile cases. Weak financial readiness or poor communication compounds that risk.
As CEO, you mitigate this by prioritizing public-company discipline months before the deal—clean audits, IR planning, governance upgrades, and a strong communications strategy.
How long does a SPAC deal usually take?
From LOI to closing, most SPAC mergers run 6–9 months—shorter than a traditional IPO. But regulatory reviews can stretch timelines if filings lack clarity.
The SPAC itself has a 24-month window before liquidation. If no deal closes, funds are returned to investors, and sponsors lose their promote.
For your company, readiness and preparation determine whether you move quickly or face delays that erode confidence and value.
Step-by-Step Breakdown of the SPAC Merger Process
- SPAC IPO raises funds in trust
- Target identified and LOI signed
- Due diligence and merger agreement negotiated
- Proxy/S-4 filed with disclosures
- Shareholder vote and redemption process
- Deal closes and de-SPAC launches new ticker
In Conclusion
A SPAC merger offers speed and negotiated valuation, but you succeed only with meticulous preparation. By understanding each step—formation, diligence, agreement, filing, voting, and de-SPAC—you can avoid pitfalls, manage investor expectations, and transition into public markets with confidence. Execution discipline, not speed alone, determines whether your SPAC deal unlocks real long-term value.
For more step-by-step guides and insights on SPACs, IPOs, and corporate finance strategies, you can explore my latest writings on Blogspot.
Glen Leibowitz is a CFO and financial executive with 20+ years in capital markets and fintech. Currently CFO at Bitcoin Depot, he previously held roles at PwC and Apollo Global Management and served as CFO of Acreage Holdings. He specializes in IPO readiness, SOX compliance, and finance transformations. A CPA, he holds a B.A. in Accounting from Queens College (NY).