SPACs Are Quietly Returning

The height of the COVID-19 pandemic provided many key catalysts for special purpose acquisition companies (“SPACs”) to thrive. Low interest rates, an influx of retail investors, and favorable regulatory environments were some of the key contributors to the record number of SPAC transactions during this time. Celebrities were also investing in SPACs, further driving the hype.

In 2022, market conditions evolved, and SPAC activity began to dry up. In addition to rising interest rates, studies have shown SPACs tend to significantly underperform traditional IPOs. This drove increased shareholder redemption rates, reducing the amount of cash available for the business combination. However, we have seen an uptick in SPAC activity since 2024, and while there probably will not be a return to the highs of 2021, SPACs will continue to be a useful tool for companies looking to enter the public markets.

Evolved Regulatory Framework

The SEC proposed increased regulations for SPACs in 2022 and adopted them in 2024. This new framework aligns some of the requirements for SPACs with other transactions, including traditional IPOs. Among those newly enacted regulations:

Enhanced disclosures are now required around sponsor identity, conflicts of interest, dilution risks, and fairness opinions.
Target companies must now become co-registrants as part of the de-SPAC transaction.
SPAC business combinations are now treated as sales of securities, aligning disclosure and liability standards with IPOs.
Safe harbor under the Private Securities Litigation Reform Act has been removed for SPACs, and forward-looking statements now carry liability risk.

Naturally, the lack of clear expectations around projections, conflicts, and sponsor compensation caused institutional capital to pause between 2022 and 2023. Now that these regulations have been clearly defined and enacted, large-scale investors have returned to the market, driving an increase in public investment in private equity (“PIPE”) to offset increased shareholder redemptions.

Changing Sponsor Profiles

As the regulatory environment shifted for SPACs, so did the profiles of their associated sponsors. At its peak, many sponsors were entering the SPAC space for the first time, and their primary focus was to drive marketing efforts. In addition, many of the shares sponsors receive as compensation for their efforts creating and managing SPACs – also called “sponsor promote” shares – were tied solely to the closing of the deal, providing quick access to equity regardless of post-merger performance.

Post-2024, most SPAC sponsors are experienced operators with proven track records. In addition to the increased disclosure requirements, sponsor promote shares are now often tied to post-merger stock performance over the combined company’s first few years. The new rules around forward-looking statements require more institutional knowledge, further driving the need for experience in this space. While this shift drives out less experienced parties, those that remain are more likely to drive success post-merger.

Stabilization of Funding Sources

The combination of increased shareholder redemptions and a decrease in PIPE activity contributed to the downturn in 2022, decreasing the amount of cash available post-merger. According to SPACInsider, as of 2025, shareholder redemptions remain around their all-time high, as approximately 90% of SPAC shares were redeemed before deals closed.¹ Public investment in private equity has started to pick up now that the new regulatory environment has taken effect, partially offsetting the cash outflows from these redemptions.

SPACs are also utilizing alternative methods to infuse capital into their deals. These mechanisms include:

Backstop and forward purchase agreements
Convertible debt instruments
Syndicated sponsorship with pooled resources

As a result, sponsors are putting more of their capital at risk, further tying their return on investment to the post-merger results of the combined company.

SPACs vs. Traditional IPOs in 2026

While SPACs are unlikely to revisit the frenzied highs of 2021, their resurgence reflects a more disciplined and sustainable model. The shift toward experienced sponsors and performance-based incentives further aligns interests with long-term success. In addition, despite enhanced SEC regulations, SPACs continue to enjoy key advantages over traditional IPOs, continuing their trend as a viable alternative to access public markets. On average, SPAC mergers still close quicker than traditional IPOs, and their flexible deal structures and access to PIPE capital provide additional funding avenues.

The conversation around SPACs should shift to considering which SPACs should exist and why. The coming months will bring selective deals led by sponsors with operational credibility and strong investor relationships, marked by quieter announcements, rigorous disclosures, and realistic timelines. SPACs are evolving into a disciplined tool, rewarding firms that approach this moment as an inflection point rather than a nostalgic callback to 2021. Success will hinge on research, control, defensible logic, and operational conviction. Market participants who internalize this shift and focus on where SPACs fit within modern capital formation strategies will be best positioned as activity scales again, looking past volume and concentrating on signal.

Readiness Matters: Positioning for Post-Merger Success

Even though SPACs offer a faster route to the public markets, IPO readiness remains just as critical for SPAC targets as for traditional IPO candidates. Enhanced SEC regulations now align many SPAC requirements with IPO standards, meaning companies must have robust financial reporting, governance structures, and compliance frameworks in place to succeed post-merger. Neglecting these steps can lead to operational strain, valuation challenges, and reputational risk once public. Eliassen Group specializes in guiding companies through this readiness journey, helping establish strong internal controls, prepare public company financials and disclosures, and implement governance best practices. By partnering with us, companies can confidently public and position themselves for long-term success in the public markets.