How to do a SPAC: both sides of the deal, the economics, and what the 2024 SEC rules changed

This post is for two readers: someone thinking about sponsoring a SPAC, and a founder or roll-up operator who has been approached by one. By the end you will know how the structure works on both sides and who gets paid what. You will also know what redemptions do to the cash, what the SEC changed in 2024, how long it takes, what it costs, and why most of the 2021 crop went badly. It explains and does not recommend. Acquisitions.com is an advisory firm, not a broker-dealer, an underwriter or a lender. Sponsoring or underwriting a SPAC involves licensed securities work.

What a SPAC is

A special purpose acquisition company is a public shell with no operations. It sells units, usually at $10 each, in an IPO. A unit is a share plus a fraction of a warrant. The SEC's investor bulletin on SPACs explains that the proceeds go into a trust account. The SPAC typically has two years to find and complete a merger, which can stretch to three. An exchange-listed SPAC that has not closed a deal within three years faces delisting. If no deal happens, the trust is returned to shareholders and the sponsor's money is lost.

So "how to do a SPAC" means two different things: sponsoring one, and merging a private company into one.

Side one: sponsoring a SPAC

The sponsor is the group that forms the shell, hires the bankers and lawyers, pays the up-front costs and looks for a target. The steps, in order:

1. Form the entity and the sponsor vehicle. The sponsor buys "founder shares" for a nominal sum. Gahng, Ritter and Zhang, writing on Columbia Law School's blog, put the founder stake at 20% of the SPAC's shares, acquired almost for free. Those shares have no claim on the trust.
2. Fund the at-risk capital. The sponsor buys private placement warrants, at about $1.50 each in the deals they studied. That cash covers the up-front underwriting fee and the SPAC's running costs. It is called at-risk because it is gone if no merger closes.
3. File the S-1 and list. The SPAC's own IPO goes through the SEC like any other registration. Nasdaq lists SPACs under their own standard: a $4 bid price, 1.1 million publicly held shares, at least 300 round-lot holders, and an $80,000 entry fee on any tier, per Nasdaq's Initial Listing Guide.
4. Pay the underwriters. The same Columbia piece gives the usual fee as 5.5% of IPO proceeds. About 2% is paid at the IPO and the rest is deferred until a merger closes. If there is no merger, the deferred part is never paid.
5. Find a target and negotiate. The sponsor's whole return depends on closing a deal before the clock runs out. That is the conflict the SEC's bulletin tells investors to read for.
6. Line up financing and go to a vote. Because public holders can redeem, sponsors often raise a PIPE (a private placement at the merger) to backfill cash. Then they file the proxy or registration statement for the de-SPAC.

Side two: merging into a SPAC (the de-SPAC)

For the private company, a de-SPAC is an M&A deal with a public shell rather than an underwritten share sale.

1. Term sheet and valuation. The price is negotiated with the sponsor up front. In an IPO it is set by an order book the night before trading.
2. Diligence and audited financials. The target needs PCAOB-audited statements that can go into an SEC filing. This is where unready companies stall.
3. Merger agreement and PIPE. Signed together, often with a minimum-cash condition that protects the target if redemptions run high.
4. SEC review of the proxy or registration statement. The combined filing is reviewed by the SEC's Division of Corporation Finance. Since 2024 the target is a co-registrant in many structures (below).
5. Shareholder vote and redemptions. SPAC holders choose to stay or to take their share of the trust.
6. Close and start reporting. The target's management now runs a public company with 10-K and 10-Q obligations. It is the life described in our post on how to do an IPO.

Sponsor economics: founder shares, warrants, at-risk capital

The sponsor's "promote" is the 20% founder stake. Klausner, Ohlrogge and Ruan, in a study published through Harvard Law School's corporate governance forum, describe it as shares equal to 25% of IPO proceeds, which equals 20% of post-IPO equity. Public holders also receive warrants in their units, exercisable at $11.50 per the Columbia piece. The SEC's bulletin notes that a SPAC can usually redeem the warrants once the shares trade above a set price such as $18.

Put together, the promote, the underwriting fee and the warrants dilute whoever is left holding shares at the merger. That is why targets negotiate the promote down. Skadden's 2023 review of de-SPAC trends records that sponsors forfeited part of their founder shares in 56% of 2021 deals and 85% of 2022 deals. It also notes that private warrants are used to fund deferred underwriting discounts and initial SPAC costs.

The trust account and redemptions

Every dollar from the SPAC's IPO sits in trust until a merger closes or the SPAC liquidates. When a deal is announced, each public holder can redeem for their share of the trust, about $10 a share, rather than stay in the combined company. The SEC's bulletin spells out that a buyer who paid $12 on the open market still gets only the trust value back.

Redemptions decide how much cash the target actually receives. The Harvard-published study looked at 47 SPACs that merged between January 2019 and June 2020. It found median redemptions of 73%. A median of just $6.67 of cash per share was left behind a $10 share. Skadden reports that redemptions on deals closed in 2022 averaged over 80%, double 2021, and reached 95% of trust capital in March 2023. Professor Jay Ritter's running tables show quarterly average redemption rates between 92% and 98% through 2024.

The consequence for a target is simple: do not plan on the headline trust. Plan on the PIPE and the minimum-cash condition.

The 2024 SEC rules

On 24 January 2024 the SEC adopted Special Purpose Acquisition Companies, Shell Companies, and Projections (Release 33-11265), effective 1 July 2024. The SEC's own release page and press release describe what the rules do.

• require fuller disclosure of sponsor compensation, conflicts of interest and dilution, in both the SPAC IPO and the de-SPAC;
• require disclosure of whether the SPAC's board determined the de-SPAC is advisable and in shareholders' interests;
• make the target company a co-registrant on the SPAC's registration statement in certain cases, so its disclosure carries IPO-style liability;
• require all material bases and assumptions behind projections to be disclosed, and make the Private Securities Litigation Reform Act safe harbor for forward-looking statements unavailable to SPACs;
• set a minimum period for sending shareholder materials before a de-SPAC vote, require a re-check of smaller-reporting-company status after the merger, and give guidance on when a SPAC risks being an investment company.

In plain words: the gap in disclosure and liability between a de-SPAC and an IPO is now much narrower. That gap was the main reason a SPAC was cheaper and faster.

Timeline and costs

Skadden adds that de-SPAC costs rose after the SEC proposed its rules. Banks asked for comfort letters and IPO-style diligence. Fairness opinions appeared in 32% of 2022 deals against 15% in 2021.

Why the 2021 SPACs did so badly

Ritter's data count 613 SPAC IPOs in 2021 raising $144.5 billion. The same tables, updated October 2026, cover the 198 companies that completed a de-SPAC merger in 2021. They returned an average of minus 64.2% in their first year, against minus 10.3% for the market. For all 625 de-SPACs from 2012 to 2024 the average first-year return was minus 51.2%. Skadden cites PitchBook's de-SPAC index as down almost 80% from March 2021 to February 2023.

The causes are in the structure, not only in the market.

• Dilution. The promote, the fee and the warrants come out of the public holders' share, so even an on-price merger starts behind. The Harvard-published study found post-merger prices "drop on average by a third or more".
• Too many shells, too few ready targets. Over 600 SPACs went hunting at once. The average target enterprise value fell from $2.22 billion in January 2021 to $185 million in January 2023, per Skadden.
• Redemptions. With 80% to 95% of the trust leaving, companies arrived public with far less cash than the deck promised.
• Projections. Targets marketed multi-year forecasts under a safe harbor that an IPO never had. The 2024 rules closed it.
• Higher rates. Investors moved from growth stories to cash flow, and PIPE money dried up. Skadden puts the average PIPE at $316 million in 2021 and $65 million by the end of 2022.

When a SPAC makes sense against an IPO, and when it does not

A SPAC can fit a company that wants a negotiated price and a shorter path from signing to trading, and that does not depend on the trust cash. It fits badly for a company that is not audit-ready, that is counting on the trust, or whose story leans on forecasts.

For a roll-up, the comparison is this. A de-SPAC gives you a listing but hands roughly a fifth of the shell's equity to the sponsor. A traditional IPO costs 4% to 7% in fees and keeps your equity. Both require the same audited, combined numbers and the same reporting afterwards.

Our roll-up funding page covers the private routes most groups use first, and how to buy a business is where the first acquisition starts. I built and sold Rollups.com and now work on AI-powered roll-ups. None of that makes a SPAC right or wrong for yours, which is why this post stops at explaining. For a plain conversation about where your group sits, book a call.