What Is a SPAC?
A Special Purpose Acquisition Company (SPAC) is a blank-cheque company that raises capital through an initial public offering with the sole purpose of acquiring an existing private business. The SPAC has no operations of its own — its only assets are the IPO proceeds held in a trust account. The SPAC’s management team (the sponsors) then identify and negotiate a merger with a private target company (the “de-SPAC” transaction), effectively taking the target public without a traditional IPO process.
SPACs provide an alternative path to public markets that can be faster, more certain on pricing, and involve less regulatory scrutiny than a conventional IPO.
How SPACs Work
Lifecycle
| Phase | Timeline | Activity |
|---|---|---|
| SPAC IPO | Day 0 | SPAC raises capital from public investors (typically $200 million - $1 billion+) |
| Trust period | 18-24 months | IPO proceeds held in trust; sponsors search for acquisition targets |
| Target identification | Months 3-18 | Sponsors identify, evaluate, and negotiate with potential targets |
| De-SPAC announcement | Month 12-20 | SPAC announces the proposed business combination |
| Shareholder vote | 2-4 months after announcement | SPAC shareholders vote to approve the merger |
| Closing | Upon approval | Merger closes; target becomes the listed entity |
| Redemption deadline | If no deal within 18-24 months | SPAC liquidates and returns capital to shareholders |
Key Structural Features
| Feature | Description |
|---|---|
| Trust account | IPO proceeds (minus underwriting fees) held in US Treasuries or money market funds |
| Redemption rights | Shareholders can redeem shares for their pro-rata trust value (approximately $10/share) regardless of vote |
| Sponsor promote | Sponsors receive 20% of post-IPO equity for a nominal investment (the “promote”) |
| Warrants | IPO investors receive warrants (typically 1/2 or 1/3 warrant per unit) providing upside |
| PIPE financing | Private investment in public equity — additional capital raised at de-SPAC to supplement trust proceeds |
| Earnouts | Target shareholders may receive additional consideration if post-merger performance targets are met |
The De-SPAC Transaction
Process
- Letter of intent — SPAC and target agree on preliminary terms
- Due diligence — SPAC conducts financial and legal review
- Merger agreement — definitive agreement executed
- PIPE raise — additional investor capital secured to demonstrate institutional support
- SEC filing — proxy statement or registration statement filed
- Shareholder vote — SPAC shareholders approve the transaction
- Closing — merger completed, target becomes publicly listed
Valuation Dynamics
The de-SPAC valuation is negotiated between the SPAC sponsors and the target:
- Target typically valued at a premium to recent private financing rounds
- PIPE investors validate the valuation by committing capital
- Post-merger trading performance depends on the target’s fundamentals and market conditions
Advantages and Disadvantages
For Target Companies
| Advantage | Disadvantage |
|---|---|
| Faster path to public markets (3-5 months vs 6-12 for IPO) | Sponsor promote dilutes existing shareholders |
| Price certainty (negotiated, not market-driven) | High redemption rates can reduce available capital |
| Ability to share forward projections | Regulatory scrutiny has increased significantly |
| Less market timing risk | Post-merger share price performance has been mixed |
For Investors
| Advantage | Disadvantage |
|---|---|
| Downside protection (redemption right at trust value) | Limited information about future target at IPO |
| Warrant upside | Sponsor incentives may not align with shareholders |
| Access to private company growth stories | Many de-SPACs have underperformed post-merger |
According to SPAC Research data, SPAC IPO volume peaked at over $160 billion in 2021 before declining significantly as regulatory scrutiny increased and post-merger performance came under criticism. The SEC’s enhanced disclosure requirements adopted in 2024 have further shaped the SPAC landscape.
APAC Context
Australia — SPACs were not permitted on the ASX until rule changes in 2023 introduced a framework for listing acquisition companies. The ASX framework includes stricter governance requirements than US SPACs, including independent director majority requirements and enhanced shareholder protections.
Singapore — SGX introduced a SPAC listing framework in 2022, with stricter requirements than the US model: minimum market capitalisation of S$150 million, independent directors on the acquisition committee, and a 24-month deadline with a 12-month extension. Several SPACs have listed on SGX, primarily targeting Southeast Asian acquisition targets.
Hong Kong — HKEX launched its SPAC regime in 2022 with the most restrictive requirements among major exchanges: minimum fund raise of HK$1 billion, professional investors only (no retail participation at IPO), and mandatory PIPE investment at de-SPAC.
“SPACs have introduced a new dimension to the APAC capital markets toolkit, but the region’s exchanges have wisely implemented stronger investor protections than the US model,” notes Daniel Bae, founder of Amafi. “For the right target company, a SPAC merger can provide a compelling alternative to a traditional IPO or trade sale.”
Exploring public market strategies across Asia Pacific? Amafi helps companies and investors evaluate exit strategies including SPACs, IPOs, and trade sales. Learn more.