Market Research · SPACs

Understanding SPACs

What blank-check companies are, who actually makes money on them, and how to tell a survivable deal from a doomed one.

Research compiled June 12, 2026 · figures from the cited academic studies; study periods differ

What is a SPAC?

A SPAC (Special Purpose Acquisition Company) is a shell company with no business operations. It exists to raise money through an IPO and then merge with a private company. The merger takes the private company public without a traditional IPO. SPACs are called "blank-check companies" because investors fund them before knowing the acquisition target.

The thesis of this page: whether a SPAC is a good investment depends on which seat you hold, and the only reliably great seat is the sponsor's. Sponsors averaged +619% per completed deal, paid even when the company flopped. Public shareholders who held through the merger lost, because dilution removes roughly half the cash behind each $10 share (Parts 1 and 3). The one public-side exception is the pre-merger arbitrage, a floor-protected trade that earns the trust yield plus a free option (Part 2). The disclosed numbers separate the survivable deals from the doomed ones before the merger closes (Parts 4–5).

The lifecycle

StageWhat happensYour position
1 · IPO The SPAC sells units to the public, almost always at $10. A unit is usually a share plus a fraction of a warrant, the right to buy another share later at a fixed price, usually $11.50. The cash goes into a trust account. Cash in trust backs your shares at ~$10
2 · The hunt The sponsors, the people who created the SPAC, have a deadline of usually 18–24 months to find a private company to acquire. Their pay is the "promote": a nearly free stake of about 20% of the SPAC's shares, worthless unless a deal closes. You hold a claim on the trust plus a free option on the deal
3 · The merger ("de-SPAC") If shareholders approve, the SPAC merges with the target and SPAC shares become shares of the new public company. Before the vote you may redeem: return your shares for your portion of the trust, roughly $10, instead of riding along
4 · Liquidation If no deal happens by the deadline, the trust is returned to shareholders. You get ~$10 back plus interest
Part 1 · The returns evidence

Who makes money on SPACs

SPAC returns sort by seat, not by deal. Pre-merger shares have been a reliably decent trade. Post-merger shares have been a reliably bad one. Sponsors won either way. The first table shows the returns by strategy; the second shows who fills each seat.

StrategyReturnEvidence
Buy at IPO, exit at merger or liquidation ("SPAC arbitrage") +23.9%/yr Equally weighted annualized return across 458 SPAC IPOs, 2010–2020. The trust floor meant even the worst SPAC in the sample returned +0.51%/yr.[2]
Hold through the merger, one year −11.3% Average one-year buy-and-hold return on post-merger shares, vs +19.4% for the broad market over the same periods, about 31 points of underperformance.[2]
Hold through merger · 2019–20 cohort, 3 months −14.5% Median post-merger return. Six- and twelve-month figures were progressively worse.[1]
Hold through merger · bubble cohort (Jul 2020–Dec 2021) −62% Average return to December 2022 across 243 mergers, about 26 points worse than comparable traditional IPOs.[3]
Be the sponsor +619% Average sponsor gain of ~$51M per completed deal.[2]

Who sits where

Each seat at the SPAC table has different economics. This table is the page's thesis in one view. Retail ownership concentrates in the post-announcement and post-merger window, which is the losing seat.[20]

SeatWhat they getWhen they leave
Sponsor The ~20% promote nearly free, plus founder warrants. Average gain +619% per completed deal.[2] Locked up after the merger, but profits even on deals where public shareholders lose
IPO-stage hedge funds Treasury yield, the redemption floor, and free warrants: the pre-merger arbitrage trade.[2] Redeem or sell at the merger; the median 2019–20 SPAC saw 73% of public shares go[1]
PIPE investors Entry at the $10 deal price, sometimes at a discount, with size and information advantages After the merger, often early via registered shares
Target and its VCs A public listing with speed and price certainty, and (pre-2024) marketable projections. The structure's costs land elsewhere.[2],[4] Lockups, typically about six months
Post-announcement retail The story. This seat absorbs the dilution that every other seat avoids.[20] Last in, and most often still holding through the merger

Why holding through the merger loses: dilution

$4.10
Mean net cash per $10 share delivered at merger in Klausner & Ohlrogge's 2019–20 sample (median $5.70).

A $10 SPAC share does not deliver $10 to the merged company. The sponsor's free 20% equity stake (the "promote"), underwriting fees, and warrant overhang consumed most of it: the SPACs in Klausner and Ohlrogge's 2019–20 sample delivered a mean of $4.10 in net cash per $10 share by the time the merger closed.[1] Their follow-up study of the bubble cohort measured the same drain, about 36% of pre-merger equity, and found that net cash per share predicted the post-merger crash almost one-for-one.[3] The total cost comparison: going public via SPAC cost the median company about 15.1% of post-issue market cap, versus 3.2% for a traditional IPO.[2]

Institutional investors exit before bearing these costs. In the 2019–20 sample the median SPAC saw 73% of public shares redeemed before the merger, and over a third of SPACs had redemptions above 90%.[1] The losses concentrate on whoever stays in.

"Can I invest in a profitable SPAC?"

A SPAC is never profitable. It has no revenue, no products, and no operations. It holds cash in a trust. You cannot screen for "profitable SPACs" the way you screen for profitable companies. The question becomes answerable once a target is announced, and then it applies to the target: most have been early-stage and unprofitable, and avoiding a traditional IPO's stricter scrutiny is often why they chose a SPAC. The pre-merger economics are Part 2; the post-merger economics are the dilution math above.
Part 2 · The arbitrage trade

How the pre-merger trade works

The +23.9%/yr figure in Part 1 comes from one repeatable trade.[5] Buy units at or below the pro-rata trust value. The trust holds Treasuries, so the position pays a Treasury-like yield with a hard floor. Every announced deal adds a free option: if the market likes the target and the price rises above trust value, sell into the rise; if it does not, redeem for the trust value at the merger vote, or collect the cash at liquidation. Hedge funds run this at scale.

$10.05+
Typical overfunded trust level in the 2025–26 market. Sponsors now deposit more than $10 per unit to raise the redemption floor, often instead of issuing warrants.[18]

The trade is real but the edge is thin today. From 2022 to 2024 returns ran close to T-bills plus a small spread, and the Robinson pre-merger SPAC ETF (SPAX) liquidated in early 2025 because the spread barely cleared its fees.[17] The CrossingBridge Pre-Merger SPAC ETF (ticker SPC) still runs the strategy, buying only at or below trust value and exiting before mergers complete.[16] Deal-announcement premiums returned in 2025 as the market revived, which restored some value to the option half of the trade.

The warrant, separately

Units split after the IPO, and the share and the warrant trade separately. The warrant is the speculative half of the unit: the right to buy a share at $11.50, typically for five years after the merger. It can be worth a few dollars while the share sits at $10 because it is a long-dated option on the deal working out. Two retail traps live here. Nearly all SPAC warrants carry an early-redemption clause: if the stock holds above a trigger, usually $18, the company can call the warrants for as little as $0.01 on 30 days' notice, and holders who miss the notice lose nearly the entire position.[13] And if the SPAC liquidates instead of merging, warrants expire worthless; only the shares get the trust money back.[14]

Doing it in practice

StepMechanics
Screen SPACInsider and ListingTrack publish live tables of every SPAC's trust value per share, premium or discount to trust, and deal deadline.[6],[19] The trade only works at or below trust value.
Buy Shares and units trade like any stock. Buying at a discount to trust locks in the yield to deadline. The deal option comes free.
Redeem Redemption goes through your broker's corporate-actions desk, not the trading screen. Brokers set internal cutoffs, commonly two business days before the official deadline, and the last day to buy and still redeem is about two business days before that deadline. Cash arrives two to three business days after the vote.[15]
Or sell If the announcement lifts the price above trust value, selling on the market captures the option value without the redemption process.
Taxes Redemption is a sale: the difference between the redemption payment and what you paid is a capital gain or loss, short- or long-term by holding period.[23] One trap: a pre-deal SPAC has no operations, so a SPAC incorporated offshore (many use the Cayman Islands) usually meets the definition of a PFIC, which can convert gains to ordinary income unless you file the right election. The proxy's tax section states whether this applies.[23]
The honest economics today: a Treasury-like yield, a small spread, and a free option, in exchange for locked-up cash, broker friction, and taxes. The 2010–2020 sample's +23.9%/yr included a once-in-history bubble. The repeatable part of the trade is the floor, not that number.
Part 3 · What predicts returns

The factors, ranked by evidence

Researchers have tested most of the intuitive candidates. Weight is how strongly the factor predicts post-merger returns in the cited studies.

FactorWhat the evidence showsWeight
Net cash per share (dilution) The strongest predictor. Post-merger share value tracks the Part 1 net-cash figure nearly one-for-one. Shareholders bear essentially the entire cost of the structure. A deal with a small promote, few warrants, and a large PIPE (private investment in public equity: outside money committed at the deal price) keeps more value behind each share.[3] High
Redemption rate Higher redemptions predict lower post-merger returns.[2] They signal a weak target and mechanically worsen dilution for the shareholders who remain. High
Deadline pressure Deals completed close to the SPAC's expiration perform worse. Sponsors facing total loss of their promote will close a mediocre deal rather than no deal.[2] Medium
Target fundamentals Post-merger returns are lower for targets with under $100M in trailing revenue, and lower still for unprofitable ones. Profitability matters; it applies to the target, not the SPAC.[2] Medium
Sponsor quality A weak predictor. Sponsors affiliated with billion-dollar funds or former Fortune 500 executives perform better than average and negotiate less dilutive terms, but many of their SPACs still lost money, and after controlling for net cash per share, sponsor quality adds little predictive power.[1],[3] Low
Summary: holding through a merger requires all of these to line up at once: low dilution, low redemptions, a deal done early in the window, a profitable target with real revenue, and a credible sponsor. Miss one and the structure favors every other party at the table. The pre-merger arbitrage (Part 2) is the only public-side trade the evidence actually favors.
Part 4 · The case study

Case study: DraftKings vs Lordstown

Both were hyped 2020 SPAC mergers in hot sectors. One trades around three times its $10 trust value six years later; the other was bankrupt within three years. Every signal that separated them was visible in the announcement-day filings. The tables below score both deals using only information available at announcement.

The two deals at announcement

DraftKings · Diamond EagleLordstown · DiamondPeak
Announced December 2019 August 2020
The SPAC $400M IPO (May 2019), the fifth "Eagle" SPAC from media dealmakers Harry Sloan and Jeff Sagansky[9] $250M IPO (March 2019) targeting "a business with a real estate related component"; sponsor David Hamamoto, a real-estate executive[10]
The deal ~$3.3B three-way merger with sportsbook platform SBTech; $304M PIPE from Capital Research, Wellington, and Franklin Templeton[9] ~$1.6B pro forma equity value; $500M PIPE including $75M from General Motors, partly in-kind[10]
The target ~$323M of 2019 revenue, millions of paying customers, an eight-year operating history Zero revenue, no production line, one prototype truck, and 100,000 claimed pre-orders, disclosed as non-binding
Outcome Closed April 2020 with 99.7% approval and negligible redemptions; peaked near $74 in March 2021; traded near $30 in June 2026, roughly +200% from trust value Peaked near $32 in September 2020, before the merger even closed in October; a March 2021 Hindenburg report found the pre-orders largely fictitious; the CEO resigned June 2021; Chapter 11 followed in June 2023; the SEC charged it with misleading investors (settled via $25.5M disgorgement); the leftover shell trades around $2[11],[12]

Scoring the factors at announcement time

FactorDraftKingsLordstown
Target fundamentals Real revenue, real customers Pre-revenue, pre-product
Verifiability Audited revenue, auditable user counts Demand evidence was non-binding letters of intent, disclosed as such in the filings
Sponsor–target fit Serial media/consumer SPAC sponsors on their fifth deal A real-estate SPAC pivoting to an EV startup
Deadline pressure Deal struck ~7 months into the SPAC's window ~17 months into a 24-month window, off the original thesis
What the pitch leaned on An existing revenue ramp plus state-by-state legalization Projections from zero revenue, the kind the SEC stripped of safe-harbor protection in 2024
The factor that did not separate them: dilution. Lordstown delivered about $4.11 of cash per $10 share, deep dilution typical of the era.[24] DraftKings was no better: its SPAC supplied roughly $700M of cash for about 22% of the company, barely $2 behind each share.[25] Net cash per share is the dominant predictor across hundreds of deals (Part 3), but here both sides were badly diluted, so it was not the discriminator. The target was. Dilution is the headwind every holder fights; a real business overcomes it, and a fake one cannot be saved from it.
Two caveats. Hindsight bias is a fair objection. The answer to it is that every signal in the table sat in the announcement-day filings. Timing is the second caveat: Lordstown tripled after its announcement and did not collapse until the Hindenburg report, five months after closing. The checklist identifies what to avoid holding. It does not predict when the price will correct.
Part 5 · Useful or scam?

How to spot a bad one

Outright scams are the rare case. The more common danger is a SPAC that is legal but structurally built to transfer your money to the sponsor. Both have tells. One habit covers nearly everything: read the filings on SEC EDGAR, the S-1 for the SPAC itself and the merger proxy or S-4 once a deal is announced. The proxy contains the honest version of every number in the pitch deck, including the dilution table and the sponsor's compensation. Scams survive on people not reading these.

Actual-fraud tells

Real frauds share recognizable features. Nikola's founder was convicted of fraud after its SPAC merger. Akazoo largely fabricated its user base. The pattern:

TellWhat it looks like
Unverifiable numbers Revenue claims with no audited financials, customers that are "letters of intent" rather than contracts, products that are demos rather than shipping. Nikola famously rolled a truck down a hill for a promo video.
Wild projections Before 2024, de-SPAC targets could legally market projections a traditional IPO could never publish. Five years of 100%+ growth from near-zero revenue was a hallmark of the worst deals. The SEC closed most of this loophole in 2024.[7] Treat any projection-heavy pitch as a flag.
Promotion over disclosure You learned about it from social media hype, a celebrity endorsement, or a YouTube channel rather than its filings. The SEC issued a 2021 investor alert specifically warning against buying SPACs because a celebrity is attached.
Evasive or recycled sponsors Search the sponsor on EDGAR and in news archives. Serial sponsors with prior blown-up deals, regulatory actions, or penny-stock histories are exactly who the 1980s blank-check rules were written for.

Legal-but-bad tells

Most investor losses come from legal structures, not fraud. Four of the tells are the Part 3 predictors read straight from the filings: net cash per share far below $10 in the proxy's dilution table, heavy redemptions (announced before closing), a deal struck near the deadline, and a pre-revenue target.[1],[2],[3] The fifth is skin in the game. Did the sponsor buy meaningful shares at $10 alongside you? Did a credible PIPE invest at the deal price? Did the sponsor forfeit part of its promote or extend its lockup? Aligned sponsors do these things; extractive ones don't.

When a SPAC is useful: a credible sponsor with relevant operating experience takes a real-revenue company public on disciplined terms, with low dilution and investors who chose to stay in. Dilution, desperation, or hype turns it into a wealth-transfer machine. Either way, no legitimate deal requires you to give up your redemption right early.

So are SPACs scams, or just inefficient?

SPACs benefit more than one party, so the premise needs one correction. The Part 1 seat table shows it: the sponsor, the IPO-stage funds, and the target all get paid, and the structure's costs land on the shareholder who holds through the merger.[2],[4] Retail investors who bought after a deal announcement disproportionately filled that seat.[20]

The accurate verdict is inefficiency, not fraud. A scam requires deception, and the SPAC's costs are disclosed: the promote, the warrants, and the dilution table are all in the proxy. Klausner and Ohlrogge describe the costs as obscured: legal, printed, and systematically ignored, which is how the market mispriced the structure for a decade.[1] An inefficient structure persists as long as its losing seat keeps being refilled with less-informed money. The 2020–21 bubble was that dynamic at maximum scale. The bust, the redemption snap-back, and the 2024 SEC rules repriced it.

The verdict: the structure is inefficient by design, and individual deals are sometimes scams. Disclosed dilution you did not read is inefficiency. Lordstown-style misrepresentation is fraud, and it gets prosecuted as fraud. The difference is whether your losses came from the proxy you skipped or from a lie.
Part 6 · The market now

The market now (2024–2026)

The revival is larger than "partial." SPAC volume has grown each year since the bust, and in early 2026 SPACs are again the majority of US IPO activity by count.

PeriodSPAC IPOsRaisedNotes
2024 57 ~$9.7B About 23% of US IPO proceeds; Q4 was the strongest quarter in two years[22]
2025 ~140 ~$26–28B Roughly triple 2024, around 40% of US IPO count[22]
Q1 2026 ~62 ~$11.8B 69% of US IPO deal count, the highest SPAC volume since 2021; completed de-SPACs remain few[21]

The terms changed more than the volume. Typical 2025–26 deals run $100–300M with experienced repeat sponsors and sector focus (AI, quantum, crypto). Trusts are overfunded to $10.05 or more per unit, which raises the redemption floor, and many deals drop warrants entirely or tie part of the promote to post-merger performance.[8],[18],[21] Each change attacks a specific item in this page's dilution math: more cash behind each share, less warrant overhang, a sponsor paid for outcomes instead of closings.

Does the critique still apply? With less force, deal by deal. An overfunded trust and a performance promote shrink the gap between the $10 you pay and the cash the company gets. They do not eliminate the deadline incentive or the fee load, and the post-2024 cohort is too young for return studies. The method of this page survives the new terms: compute net cash per share from the proxy and let that number, not the sponsor's name, make the call.
Appendix

Sources

  1. Klausner, Ohlrogge & Ruan, "A Sober Look at SPACs," Yale Journal on Regulation (2022) · SSRN 3720919
  2. Gahng, Ritter & Zhang, "SPACs," Review of Financial Studies 36(9) (2023) · academic.oup.com
  3. Klausner & Ohlrogge, "Was the SPAC Crash Predictable?," Yale Journal on Regulation Bulletin 40 (2023) · yalejreg.com
  4. Klausner & Ohlrogge, "A Second Look at SPACs: Is This Time Different?," Harvard Law School Forum on Corporate Governance (2022) · corpgov.law.harvard.edu
  5. Accelerate, "The Art of SPAC Arbitrage" · accelerateshares.com
  6. SPACInsider, SPAC IPO statistics · spacinsider.com/data/stats
  7. SEC, "SEC Adopts Rules to Enhance Investor Protections Relating to SPACs, Shell Companies, and Projections" (Jan 24, 2024) · sec.gov
  8. Foley & Lardner, "SPAC 4.0: From Spectacular Failures to a Disciplined Renaissance" (2025) · foley.com
  9. Deadline, "DraftKings To Go Public In $3.3B Merger With Diamond Eagle" (Dec 23, 2019) · deadline.com
  10. Business Wire, "Lordstown Motors Corp. to List on NASDAQ Through Merger With DiamondPeak Holdings Corp." (Aug 3, 2020) · businesswire.com
  11. Hindenburg Research, "The Lordstown Motors Mirage: Fake Orders, Undisclosed Production Hurdles, And A Prototype Inferno" (Mar 2021) · hindenburgresearch.com
  12. SEC, "SEC Charges Lordstown Motors with Misleading Investors about Company's Flagship Electric Vehicle" (Feb 29, 2024) · sec.gov
  13. FINRA, "SPAC Warrants: 5 Tips" · finra.org
  14. SEC, "What You Need to Know About SPACs · Investor Bulletin" · sec.gov
  15. SPAC Research, FAQ (redemption mechanics for shareholders) · spacresearch.com
  16. CrossingBridge Pre-Merger SPAC ETF (SPC) · crossingbridgefunds.com
  17. ETF Database, Robinson Pre-Merger SPAC ETF (SPAX, liquidated 2025) · etfdb.com
  18. ARC Group, "Trust Overfunding in a Deal-Starved SPAC Market" · arc-group.com
  19. ListingTrack, SPAC market stats and trust screener · listingtrack.io
  20. Committee on Capital Markets Regulation, "Nothing But the Facts: Retail Investors and Special Purpose Acquisition Companies" · capmktsreg.org
  21. FTI Consulting, "IPO & SPAC Market Update: Q1 2026" · fticonsulting.com
  22. ARC Group, "The Resurgence of SPACs in 2025" · arc-group.com
  23. Citrin Cooperman, "SPACs: What Are They and How Are They Taxed" · citrincooperman.com
  24. DiamondPeak Holdings / Lordstown Motors investor presentation (Aug 2020), SEC EDGAR (~$675M cash, ~164M pro forma shares) · sec.gov
  25. DraftKings Inc., Form 424B3 (2020), SEC EDGAR (Diamond Eagle trust + PIPE cash, post-merger ownership) · sec.gov