If you’ve been keeping an eye on the mergers and acquisitions (M&A) space, you’ve probably noticed the massive buzz around SPACs (Special Purpose Acquisition Companies). One minute, they’re being hailed as the hottest ticket to take a private company public quickly; the next minute, they’re accused of fueling overpriced deals for subpar businesses.
Where does the truth lie? As with most things in M&A, it depends on the specifics. Below are five angles worth considering before you buy into the hype (or dismiss SPACs entirely).
The “Blank Check” Hype Machine
There’s a reason SPACs sometimes get described as “blank check companies”: they raise money first, then go hunting for a promising target after the fact. That setup can fuel a fair amount of excitement—especially when big-name investors or even celebrities jump aboard. But hype, on its own, doesn’t automatically translate into a sound investment. Similar to the smaller SPVs (special purpose vehicles), SPACs hold a very specific purpose in the realm of M&A.
If you’re curious about a SPAC deal, zoom in on the fundamentals. Does the target company have a strong runway for growth? Any real competitive edge? Be sure to look past the headlines to see if the business you’re actually buying into merited all that excitement in the first place.
A Faster Path to Public—But At What Cost?
One of the biggest selling points for SPACs is speed. Compared to a lengthy, traditional IPO process, SPAC mergers can feel like a shortcut: less paperwork, fewer roadshows, and a quicker track to a public listing. But faster is not always better. A rushed timeline can mean that crucial due diligence—the deep-dive kind that reveals a business’s weaknesses—might get glossed over.
Of course, some SPAC sponsors do their homework and target genuinely promising companies. Others might push through a deal that looks good on paper but can’t hold up under scrutiny. It’s on you, as an investor or stakeholder, to cut through the spin.
Are Valuations Getting Bloated?
A common knock on SPACs is that they sometimes hand out lofty price tags, especially for companies that haven’t turned a profit or haven’t nailed down a proven market. Is overpaying guaranteed? Not necessarily. Some SPACs negotiate fair deals based on realistic growth projections. Others bank on rosy scenarios that never materialize.
If you see a merger pitch with massive revenue forecasts—particularly when the company in question is still in a nascent stage—ask hard questions. How do these growth assumptions compare to industry norms? What’s the timeline to breakeven or profitability? A little scrutiny goes a long way in avoiding overblown valuations.
The Sponsor’s Incentive
Many SPAC sponsors get an upfront slice of equity (often around 20% of the common stock) for launching the SPAC. Critics argue this structure encourages them to strike any deal—good, bad, or mediocre—just so they can lock in returns for themselves.
In fairness, sponsors with solid reputations or proven track records in a particular sector are often quite motivated to pick strong targets, because their reputations are on the line. The key is to find sponsors who genuinely understand the industry they’re investing in, rather than ones who chase trendy verticals without meaningful expertise.
Post-Merger Reality Check
After a SPAC merges with its target (the so-called de-SPAC transaction), the company has to stand on its own in the public markets. If investor sentiment sours or quarterly results disappoint, there’s no magic shield that keeps share prices high.
SPAC or no SPAC, the laws of the market still apply. That’s why it’s important to evaluate the underlying business model, the comprehensiveness of the strategic plan, and whether the team can deliver on its promises—just as you’d do for a typical IPO or any other M&A investment.
Final Thoughts
In the end, SPACs are neither automatic goldmines nor guaranteed duds. They’re simply another route to take a private company public. If you’re thinking of getting involved—whether as an investor, advisor, or potential seller—treat SPACs with the same scrutiny you’d give any other sizable M&A transaction.
Ask the right questions, examine the numbers, and don’t get blinded by hype. The smartest moves in M&A generally boil down to understanding the fundamentals and placing bets on businesses with genuine staying power.
