Special purpose acquisition companies are back in the headlines, although the story looks very different from the frenzy of 2020 and 2021. If you are trying to make sense of SPACs today, start with the mechanics, then layer on what changed under new SEC rules, and finally look at how the market has actually performed.
The SPAC market in 2025 feels more disciplined, less like a stampede and more like a proving ground. For investors in the United States and Canada, the story now is about structure, survival, and whether this tool can carve out a lasting role in capital markets.
The simple idea behind a SPAC
At its core, a SPAC is a blank-check company. It raises money from the public, places almost all of it in a trust, and goes hunting for a private business to merge with. If shareholders do not like the proposed deal, they can take back their money, usually close to ten dollars a share plus a sliver of interest. That redemption right is the guardrail that makes a SPAC both safe and speculative: you get a bond-like floor with a built-in option on the sponsor’s ability to find a promising target.
Investors typically buy units at IPO that later split into common stock and warrants. The stock behaves like cash in waiting, while the warrants offer leveraged upside if the eventual merger succeeds. The structure looks simple, but the details — how many warrants, what redemption rights, what sponsor incentives — are where outcomes diverge.
The rulebook changed in 2024
The most dramatic reset came from regulators. On January 24, 2024, the SEC adopted a sweeping set of rules governing SPAC IPOs and de-SPAC mergers. Most provisions took effect on July 1, 2024. One technical requirement — Inline XBRL tagging of the new disclosures — comes later, with compliance required starting June 30, 2025.
Gary Gensler, Chair of the SEC, said at the time: “Just because a company uses an alternative method to go public does not mean that its investors are any less deserving of time-tested investor protections. Today’s adoption will help ensure that the rules for SPACs are substantially aligned with those of traditional IPOs.”
What really matters
Liability and alignment
De-SPAC transactions now look much more like traditional IPOs from a liability standpoint. The target company must sign the registration statement as a co-registrant on Form S-4 or F-4. That means its executives and directors take on potential Section 11 liability for misstatements, just as they would in a standard IPO. In addition, new Rule 145a deems every de-SPAC to involve a sale of securities to the SPAC’s shareholders, which brings Securities Act registration requirements squarely into play.
Projections
The SEC also took direct aim at forward-looking statements. By expanding the definition of a “blank check company” under the Private Securities Litigation Reform Act, the agency made the PSLRA safe harbor unavailable to SPACs. Companies can still include projections in de-SPAC filings, but they must be clearly labeled as such, grounded in reasonable assumptions, and accompanied by explanations that place them in context.
Transparency
A new Subpart 1600 of Regulation S-K requires detailed disclosure on the mechanics that matter most: sponsor compensation, conflicts of interest, potential dilution under various redemption levels, and the financing tools used to get deals closed. The rules also set minimum dissemination periods, requiring proxy statements or prospectuses to be provided to investors at least 20 calendar days before a shareholder vote, unless local law requires an even longer window. From June 2025 onward, these disclosures must also be tagged in Inline XBRL so investors can parse them more easily.
The boom, the reset, and where the market stands
The rise and fall of SPACs reads like a market parable. In 2021, more than 600 SPACs went public, raising record sums in what became known as the “SPAC boom.” By 2024, issuance had collapsed to just 57 deals, close to the levels seen before the craze began. SPACInsider described the year as “a rebuilding year,” with activity picking up late but nowhere near the heights of the bubble.
In 2025, the tone is steadier. By mid-August, 81 SPAC IPOs had priced, raising over 16 billion dollars with an average deal size just under 200 million. That’s not exuberance, but it’s proof that the model is not dead. The market has found a new equilibrium, even if enthusiasm remains tempered.
The redemption rate tells the other half of the story. Investors have been cashing out at record levels, with redemptions averaging more than 95 percent in recent deals. For many targets, that means they arrive on the public market with far less cash than promised. A few high-profile mergers have managed to trade above trust value before closing, which keeps redemptions lower and strengthens balance sheets, but those remain the exceptions.
Two case studies: promise and peril
To understand both the potential and the pitfalls, consider DraftKings and Lordstown Motors.
DraftKings, the sports-betting platform, went public through a SPAC in 2020. Investors who stuck with the deal watched the stock surge as legalized betting spread across the U.S. The company leveraged its new public currency to expand aggressively and cement its brand. It still runs at a loss, but DraftKings has become a household name with a multibillion-dollar market capitalization. Analysts often cite it as a proof point that SPACs can deliver lasting winners when paired with strong fundamentals and a favorable industry trend.
Lordstown Motors tells the opposite story. The electric truck startup merged with a SPAC in 2020 and briefly soared past thirty dollars a share. But questions soon arose about its production capacity and preorder claims. By 2021, the company faced investigations, executive turnover, and a severe cash crunch. The stock collapsed, and in 2023 Lordstown filed for bankruptcy protection. For investors, it was a wipeout — and a cautionary tale of how the SPAC structure can push unready companies into the public spotlight too soon.
Together, these two examples capture the spectrum of outcomes. A SPAC is only a shell; the real story lies in the quality of the business and how much cash it has on day one.
How the structure really works
Every SPAC begins with a sponsor team. Sponsors often contribute initial capital, line up underwriting support, and in exchange receive founder shares and private placement warrants. Those founder shares, known as the “promote,” typically equal about 20 percent of the company post-IPO. If redemptions are low, the dilution is manageable. If redemptions soar, the promote can wipe out much of the value left for public shareholders.
This is why modern de-SPAC filings devote so much space to dilution tables. A deal with 90 percent redemptions looks very different from one with 30 percent. Sponsors can adjust by forfeiting part of their promote, structuring earnouts, or raising private investment in public equity (PIPE) funding to backfill lost cash. The SEC’s 2024 rules now force those mechanics into plain view.
The vote and redemption window is where the rubber meets the road. Shareholders must decide whether to redeem or stay. Sponsors often offer inducements — such as bonus shares for those who don’t redeem — to keep enough cash in the deal. These tactics can be clever, but they also add complexity to the capital structure. The new disclosure regime makes them harder to hide.
Canada’s approach
Canadian regulators chose a more prescriptive model. The Toronto Stock Exchange requires a minimum raise of 30 million Canadian dollars, escrows at least 90 percent of gross proceeds, and enforces a 36-month deadline to complete a qualifying acquisition. Shareholder rights, redemption mechanics, and independent approvals are clearly defined.
For cross-border investors, the takeaway is simple. The economics are similar, but the Canadian regime is tighter on timelines and escrow requirements. Whether you’re investing in a U.S. or Canadian SPAC, the same questions apply: how much cash per share will remain after redemptions, how much dilution comes from the promote and warrants, and whether the target has the fundamentals to thrive as a public company.
Reading a SPAC like a professional
Evaluating a SPAC requires a few key steps. Start with the cash. The IPO raise tells you little; the net cash per share after redemptions and fees tells you everything.
Next, study incentives. A promote tied to long-term share price or performance targets signals alignment. A promote that vests immediately does not. Warrants also matter. Check their redemption triggers and exercise provisions, as they can shift value away from common shareholders.
Finally, analyze the target company as if it were filing a traditional IPO. Look for audited financials, customer traction, a path to free cash flow, and a management team ready for quarterly scrutiny. The SEC’s new rules are designed to push this information into the filings. Investors should use it.
Why risks remain
Despite reforms, SPACs are not without danger. Many de-SPACs from the last cycle arrived with thin cash cushions, complex capital structures, and projections they could not deliver. Average one-year returns have been sharply negative, according to academic studies and market data. Until redemption rates fall and stronger companies choose this route, those headwinds are likely to persist.
For investors, it helps to think of SPACs in two phases. Before the merger, shares trade like a cash equivalent with modest upside. After the merger, they behave like any newly public small-cap stock, with all the volatility, liquidity risk, and execution challenges that entails.
The outlook for 2025 and beyond
The rest of 2025 will test whether SPACs can stabilize. Key signals to watch include whether announced deals start trading at premiums to trust value, whether sponsors tie more of their compensation to long-term performance, and whether redemption rates begin to decline. Analysts expect fewer IPOs overall, larger deal sizes, and more creative financing structures that reduce dilution.
The broader question is whether SPACs can move from being a speculative boom-bust vehicle to a mainstream alternative path to the public markets. If they can consistently bring credible companies public with adequate cash and transparent structures, they may claim a permanent seat alongside traditional IPOs and direct listings. If not, they may remain a niche tool used only in special situations.
Treat the structure as a starting point, not the story. Run the cash math, scrutinize dilution, and judge the target as if it were filing a traditional IPO. SPACs can still open doors to the public markets, but the quality of the business, and the capital it retains on day one, will always decide the ending.
