Outlook for SPACs
August 2025 | TALKINGPOINT | FINANCE & INVESTMENT
Financier Worldwide Magazine
August 2025 Issue
FW discusses the outlook for special purpose acquisition companies (SPACs) with Keith Billotti and Edward Horton at Seward & Kissel LLP.
FW: Could you provide an overview of key recent trends and developments in the special purpose acquisition company (SPAC) market? How would you describe current levels of activity?
Billotti: It is well known that the insatiable appetite for special purpose acquisition company (SPAC) initial public offerings (IPOs) that dominated the US capital markets in 2020 and the better part of 2021 has waned in recent years. However, there are signs that SPAC IPOs may be making a comeback. While not at the levels seen in 2020 or 2021, the first quarter of 2025 saw the pricing of 19 SPAC IPOs, raising a total of $3.1bn. This trend has continued into the second quarter with a total of 58 SPAC IPOs though 15 June 2025.
Horton: Stock market volatility and uncertainty surrounding tariffs have caused some companies to reconsider their traditional IPO plans, creating an opportunity for SPACs and de-SPACs which are viewed as a viable and reliable alternative to create liquidity for businesses and their shareholders. Additionally, there is new hope that the Securities and Exchange Commission (SEC) will be more friendly to SPACs under the Trump administration, with expected deregulation and tax cuts. New SPAC IPOs and their investors seem to be more seasoned players with reputable track records. Valuations are more conservative, deal sizes are smaller and experts say there is a stronger emphasis on profitability over pure growth.
FW: What changes are you seeing in SPAC structures and investment terms? How have these adjustments influenced investor interest and the broader use of SPACs?
Horton: In addition to the SPAC players’ sophistication, there are also changes to recent SPAC structures and deal terms. Most raised around $200m, listed on NASDAQ, have a timeline of 12, 18 or 24 months, and have a month between initial public filing and IPO. Unlike earlier SPACs, most are now domiciled in the Cayman Islands, a handful are domiciled in the British Virgin Islands, and almost none are in Delaware. The shift away from Delaware incorporation is due to a stark increase in derivative lawsuits brought in Delaware against SPACs. The Cayman Islands is an attractive option as the US exchanges are familiar with the Cayman Islands exempted company structure which streamlines the listing process, and the Cayman Islands is more favourable to companies in regard to tax benefits and efficient legal frameworks, making it easier to structure the de-SPAC process. New SPAC targets are spanning a broad range of sectors and appear to be sector agnostic. Certain sectors that have been more popular for SPAC deals due to factors like high-growth potential, innovation and investor appetite include crypto and digital assets, as well as artificial intelligence (AI), energy, data centres and other technology-driven industries.
Billotti: Unlike the standard 24-month term that dominated in previous years, this year’s SPACs are being structured with shorter timelines ranging from 12 to 18 months. This puts significant pressure on sponsors to complete a de-SPAC within a tighter timeframe, requiring sponsors and target companies that can efficiently navigate the de-SPAC process and avoid incurring costly extension-related expenses. A SPAC IPO is often structured to offer investors a unit of securities consisting of shares of common stock and either ‘warrants’ or ‘rights’ as an incentive to attract investors. A warrant is a contract that gives the holder the right to purchase from the company a certain number of additional shares of common stock in the future at a set price, the strike price. A right provides the shareholder with the ability to automatically receive a fraction of a share of the new company upon the completion of a merger. Unlike traditional SPAC warrants, which often carry exercise prices above the post-combination share price, rights can ensure investors gain fractional shares at no additional cost once a deal is announced. Another incentive tactic that was traditionally used in SPAC deals in 2021 and 2022 to attract investors was overfunding of the SPAC trust account. Overfunding of the trust account means that a sponsor places more money into the account than the minimum required to cover the SPAC’s IPO shares. For example, if the sponsors initially put $10 per share in the trust account, and decide to overfund the account by $0.20 per share, any investor that redeems its shares would receive $10.20 per share instead of $10. However, recent SPAC deals have seen either a reduction to the overfunding at a range of $0.0-$0.10, or no overfunding feature at all.
“In light of ongoing economic uncertainty, traditional IPOs may remain stagnant and SPACs may continue benefitting from a lack of alternatives for companies.”
FW: Given the current market volatility, are SPACs becoming a more appealing route for companies seeking to go public?
Horton: With the current market volatility and uncertainty surrounding tariffs, SPACs may be a more appealing route for a company looking to go public. In a volatile trading environment, de-SPAC transactions can offer flexibility by providing a longer public marketing period. However, redemption risk remains a major hurdle in the financing of the de-SPAC process. To address this, sponsors are increasingly using tools such as non-redemption agreements, private investment in public equity (PIPE) financings, and structured instruments like convertible notes and equity lines of credit. These mechanisms ensure that enough working capital is available post-merger. PIPEs also serve as a validation tool by third parties who send a signal to the market that they believe the deal is priced appropriately.
FW: Could you share examples of any recent SPAC transactions that showcase how new structures or strategies are being applied by issuers?
Billotti: Pelican Acquisition Corporation’s recent $86.25m IPO is an example of the recent trends we are seeing in the SPAC market. The offering priced at $10 per unit, with each unit comprising one ordinary share and a right to receive one-tenth of a share upon a business combination. The choice to use rights as opposed to warrants is deliberate as rights can reduce dilution for early investors while incentivising participation in future deals. Pelican’s IPO was fully oversubscribed with an exercised overallotment option and a concurrent private placement to raise capital to support the company’s operations and potential merger or acquisition goals.
Horton: Pelican is incorporated in the Cayman Islands and has secured a dual listing on Nasdaq for its common shares and rights. It initially has 15 months from its IPO to consummate a business combination with a target company, and announced on 23 June 2025 that it entered into a non-binding letter of intent with a merger target. Pelican is keeping its targets broad and seeks to acquire businesses across any industry or geographic region, giving it flexibility to capitalise on undervalued sectors or emerging opportunities, as opposed to being niche-focused which may overexpose investors to single-sector risks. However, while the Pelican SPAC is industry agnostic, it is led by experienced individuals with background in high-stakes real estate transactions that may provide benefits in evaluating the operational and regulatory viability of potential targets.
FW: How would you assess regulatory oversight throughout the SPAC lifecycle? Are current rules effectively balancing innovation, investor protection and market integrity?
Billotti: In January 2024, the SEC adopted new rules to enhance disclosures to strengthen investor protection for SPAC IPOs and de-SPAC transactions. The new rules look to align SPAC disclosure more closely with those of traditional IPOs, requiring more disclosure surrounding conflicts of interest, dilution effects, SPAC sponsor compensation, minimum periods for distributing security holder communication and dilution. The new rules also call for increased information about target companies, including greater transparency in financial projections, to aid investors when making voting and investment decisions on whether to complete the de-SPAC transaction. One form of regulatory oversight and a considerable source of risk in a SPAC transaction is the possibility of SEC enforcement or other lawsuits, which can include securities class actions and derivative lawsuits. An example of an SEC SPAC-related lawsuit illustrating the type of issues the SEC is focused on is SEC vs Akazoo. The defendant company was charged with misleading its shareholders, promising a merger with a music company that had millions of subscribers and high income. The SEC investigation confirmed this was not in fact the case, with the company having no paying users and little revenue beyond the amount it had raised from investors. As with this case, most SPAC-related lawsuits have ended in settlement. 2024 saw a decline in the number of SPAC-related securities class actions filed than in previous years. Notably, most of the 2024 SPAC-related securities class actions filed were related to business combinations that closed in 2021, so it is important to be aware that SPAC lawsuits may come up even years after the transaction. There has been a recent trend in the filing of derivative lawsuits against SPACs and the combined company’s directors and officers (D&Os) following securities class actions. There have been about 50 derivative actions filed, in addition to a related SPAC securities class action as of January 2025. SPAC-related litigation has shifted from security class actions to filing of fiduciary duty suits in Delaware. As a result, new SPACs appear to be avoiding domiciling in Delaware. Considering the lengthy period between a business combination and a securities class action, and the large number of these actions that pull in the SPAC and its D&Os defendants, it is important to have a sufficiently long coverage period for the SPAC and its D&Os after the closing of the merger.
Horton: Though SEC actions related to SPAC-transactions have appeared to cool in the last year, there are still actions being brought. SEC actions against SPACs have imparted several lessons. First, a SPAC cannot engage in substantive meaningful discussions with potential target companies before closing its IPO. Second, relying on AI to help value or make decisions in relation to these transactions can mislead investors. Third, private companies looking to merge with a SPAC need to ensure they have a solid Public Company Accounting Oversight Board independent auditor in order to meet SEC independence requirements. Lastly, private companies need to be prepared for the increased reporting, bookkeeping, compliance and intensive standards required of public companies, particularly where financial reporting and accounting controls are concerned. The increased regulatory oversight, while crucial for investor protection, may make SPACs less attractive due to their reduced efficiency, potentially impacting innovation and market appeal. Under the new rules, in certain situations, the target company is required to sign a registration statement filed by a SPAC or shell company in connection with a de-SPAC transaction. This would make the target company a ‘co-registrant’ and assume responsibility for disclosures in that registration statement. However, the current framework represents an ongoing effort to strike a balance between fostering innovation and ensuring strong investor protection, which can lead to fewer, but potentially stronger and more successful, SPAC and de-SPAC transactions.
“In this new era, SPACs are more mature, working under a stronger regulatory framework, and tend to have a more cautious investor base.”
FW: What are the main challenges typically encountered during the SPAC process? What do these reveal about potential risk points and the long-term viability of the market?
Horton: The decline of SPACs after its boom in 2021 may be attributed to, among other things, issues with finding suitable target companies for the SPAC to merge with, with many valuations having been assessed through overly optimistic projections. SPACs have limited funds and often risk being delisted if they do not complete a de-SPAC within their prescribed period. The limited funding of a SPAC, together with a shortened window to consummate the deal, may lead the SPAC to merge with an unsuitable private company. This can create a conflict between the sponsor’s desire to maximise its own gains and to close a deal, and the need to ensure the target company is valued fairly for public shareholders.
Billotti: Recent trends appear to indicate that the market has learned from its mistakes in the 2021 SPAC era, and it appears to be focusing on SPAC deals that include more experienced SPAC managers to avoid some of the pitfalls from previous years. This, coupled with some of the new regulatory requirements, creates some optimism about the future of SPAC deals.
FW: In light of ongoing economic uncertainty, how do you see the SPAC market evolving in the near future? What trends, risks or opportunities are likely to emerge?
Horton: In light of ongoing economic uncertainty, traditional IPOs may remain stagnant and SPACs may continue benefitting from a lack of alternatives for companies. While the new era of SPACs seems to have evolved, and certain lessons have been learned from the SPAC boom of 2020 and 2021, challenges remain for the SPAC industry. Sponsors in this new era are more seasoned, but they are also fewer in number and face increased competition for high-quality targets. There are more SPACs competing for a limited pool of targets, which could drive up valuations. High valuations make it more difficult to justify high acquisition prices. If high valuations are not well supported, shareholder confidence may decline, increasing the risk of redemptions.
Billotti: In an attempt to combat economic challenges, SPAC sponsors and their teams should look to strengthen their due diligence, which includes vetting target companies’ financial operations, historical performance and growth projections. SPACs should also strengthen their communication with their investors, as advanced by the recent SEC regulations. In this new era, SPACs are more mature, working under a stronger regulatory framework, and tend to have a more cautious investor base. While the unprecedented levels of SPACs have declined since 2021, SPACs remain a viable path for growth-oriented private companies to enter the public space with the right sponsor expertise and reliable valuation.
Keith Billotti is head of Seward & Kissel’s capital markets practice. He advises domestic and international clients on securities law, M&A, SPACs, dual listings and private equity. He counsels on governance, compliance and complex financings. Recognised for maritime finance expertise by Chambers and The Legal 500, he is a frequent industry speaker and contributor to the firm’s Maritime Blog. He can be contacted on +1 (212) 574 1274 or by email: billotti@sewkis.com.
Edward Horton is a partner and co-head of Seward & Kissel’s capital markets practice. He specialises in corporate securities law, advising domestic and international clients on public and private offerings, cross-border transactions and regulatory compliance. His practice includes governance, activist investing and fund representation. He also contributes insights to the firm’s Maritime Blog. He can be contacted on +1 (212) 574 1265 or by email: horton@sewkis.com.
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