Key Takeaways
- A SPAC raises money in an IPO, holds it in trust while its sponsor looks for a target, and must return the money if no deal closes within the set period, typically about 24 months.
- Pershing Square Tontine Holdings dropped the usual 20% sponsor promote and restructured its warrants, but it never completed a merger and returned about $4 billion to shareholders in 2022.
- SEC rules effective in July 2024 require more disclosure about sponsor compensation, conflicts, and dilution, make the target a co-registrant, and remove the PSLRA safe harbor for de-SPAC projections.
In July 2020, the largest special purpose acquisition company ever floated on the New York Stock Exchange, raising $4 billion. What is a SPAC, why did SPACs surge during the pandemic, and what made Bill Ackman's Pershing Square Tontine Holdings so different?
Joel Cohen talks with Pamela Marcogliese, a capital markets partner at Freshfields, and Sebastian Fain, an M&A partner then at Freshfields and now at Gibson Dunn, about SPAC structure, sponsor economics, and how SPACs compare with traditional IPOs.
How a SPAC Works
Mr. Fain explains that a SPAC, often called a blank check company, raises money in an IPO with the intent of doing a deal later. While the sponsors search for a target, the money stays in trust, and if they do not close a deal within the prescribed time, usually about 24 months, the money goes back to investors. The guests describe SPACs as a kind of democratization of private equity: like a PE sponsor, a SPAC sponsor raises money on its deal-making record before it has a target, but anyone can contribute $10 a share. And unlike a PE investor, a SPAC shareholder who does not like the proposed deal can redeem. SPACs are not new, they note, but when pandemic dislocation disrupted the IPO market, they became an appealing route to going public, with activity concentrated in electric vehicles, technology, and fintech, though they see no sector as unsuitable.
What Made Tontine Different
In a standard SPAC, the guests explain, sponsors are well paid for their risk: they typically put in about $25,000 for 20% of the shares, plus a few million dollars for warrants. Tontine eliminated the founder shares entirely, struck its warrants above the usual price, and delayed their exercise for three years, so the sponsor would benefit only if the combined company succeeded. The aim was a lower cost of capital to attract a stronger target, which Tontine's prospectus described as a mature unicorn. They see this as part of a maturing market with higher-profile sponsors and larger deals.
SPACs versus IPOs and Direct Listings
A SPAC's valuation, they explain, is negotiated bilaterally with the target, as in any M&A deal, and the company goes to market with an announced deal and projections, offering more certainty than the start of an IPO roadshow. Each path has trade-offs, and the right choice depends on what a company is trying to maximize.
What to Know Now
Tontine did not reach its goal. A planned investment in Universal Music Group was withdrawn in 2021 amid questions about the structure, and the SPAC liquidated in July 2022, returning about $4 billion to shareholders. The broader SPAC boom cooled as well. In In re MultiPlan Corp. Stockholder Litigation (2022), Delaware's Court of Chancery applied entire fairness review to claims that sponsors impaired shareholders' redemption decisions, and the SEC adopted SPAC rules effective July 1, 2024, requiring more disclosure about sponsors, conflicts, and dilution, treating the target as a co-registrant, and removing the PSLRA safe harbor for de-SPAC projections. Even so, SPAC issuance rebounded in 2025 and early 2026, and SEC Chair Paul Atkins has said the agency will revisit the 2024 rules. The guests' central point, that SPACs are one option among several, has held up.
