SPACs Are Evolving – and Getting even Worse for Long-Term Investors

SPACs have been evolving recently in ways that make them even more expensive vehicles to take companies public, and thus in ways that will likely lead to even worse returns for shareholders who hold their shares through SPAC mergers. Each of the changes is designed to allow sponsors to continue to launch new SPAC IPOs, or to complete new SPAC mergers, even when market confidence in those sponsors grows increasingly dim. Yet, as with much else in the SPAC structure, these changes serve to divert even more value to parties in the SPAC transaction other than non-redeeming SPAC shareholders. As such, they are likely to lead to even larger losses for non-redeeming SPAC shareholders going forward. These developments highlight the fact that SPAC costs remain subtle, opaque, and poorly understood by a great many investors. Thus, these developments emphasize the need for new regulations to more clearly disclose to SPAC shareholders the costs they bear in SPAC transactions. Such disclosures may help facilitate SPAC evolution that actually serves to benefit long-term shareholders in SPACs