Special Purpose Acquisition Companies

# Executive Summary * The Special Purpose Acquisition Company (SPAC) industry is navigating a transformative period defined by heightened U.S. Securities and Exchange Commission (SEC) regulatory scrutiny, which has increased compliance costs, extended timelines, and fundamentally altered the risk-reward profile of de-SPAC transactions. * An unforgiving "Completion Window" remains the primary existential threat, with many SPACs facing looming liquidation deadlines and issuing "going concern" warnings due to limited operational cash outside their trust accounts. * Persistent geopolitical and macroeconomic volatility is constricting the supply of viable acquisition targets and complicating valuation, adding another layer of execution risk for SPACs. * In response to intense competition, SPACs are increasingly differentiating through deep sector specialization (e.g., healthcare, technology) or unique structural advantages, moving away from generalist approaches. * The financial model remains binary: pre-merger SPACs generate zero revenue, with net income currently driven by interest on trust accounts, which masks underlying operational cash burn. * The key determinant of success is shifting from mere speed-to-market to the ability of sponsors to navigate a complex regulatory environment and source high-quality, defensible targets. ## Key Trends & Outlook The most significant factor reshaping the Special Purpose Acquisition Company industry is the wave of increased regulatory scrutiny, crystallized by the SEC's new rules effective in April 2024. These rules enhance disclosure requirements and impose greater liability on underwriters and directors, aligning the de-SPAC process more closely with a traditional initial public offering (IPO). This fundamentally increases legal and administrative costs, eroding the SPAC vehicle's traditional advantages of speed and efficiency. The real-world impact is visible in compliance challenges, such as the Nasdaq deficiency notice issued to Roman DBDR Acquisition Corp. II (DRDB) for delayed financial reporting and identified material weaknesses in internal controls. As SIM Acquisition Corp. I (SIMA) noted, this new landscape increases transaction complexity and potential costs, directly impacting the competitive dynamics and the pool of viable targets. This regulatory pressure is compounded by the inherent, high-stakes deadline of the SPAC structure, which mandates a business combination within a finite period, typically 18-24 months from IPO. Failure to complete a deal results in mandatory liquidation, rendering sponsor capital and public warrants worthless. This risk is not theoretical; several active SPACs, including DRDB, Plum Acquisition Corp. IV (PLMK), and Range Capital Acquisition Corp. (RANG), have been forced to disclose "substantial doubt about our ability to continue as a going concern" due to their limited operational cash outside the Trust Account and the imperative to complete a business combination within the mandated timeframe. For well-capitalized sponsors with deep domain expertise, the current environment offers an opportunity to acquire attractive private companies in a less crowded, more disciplined market. However, the primary risk is a "deal drought," where the combination of regulatory hurdles, macroeconomic uncertainty, and intense competition for the best assets makes it impossible to find a value-accretive merger before the liquidation deadline. Geopolitical instability from conflicts in Ukraine and the Middle East introduces an additional layer of complexity, leading to volatility in capital markets and supply chains, potentially affecting the availability and valuation of suitable acquisition targets, as noted by Siddhi Acquisition Corp (SDHI). ## Competitive Landscape The Special Purpose Acquisition Company market is highly fragmented and intensely competitive, forcing SPACs to differentiate beyond simply offering capital. Individual SPACs like Plum Acquisition Corp. IV (PLMK) and Range Capital Acquisition Corp. (RANG) report estimated market shares of approximately 0.3% and less than 1% respectively, indicating a crowded field where numerous blank check companies, private equity funds, and strategic corporate buyers vie for attractive private companies. Many SPACs now operate as "Sector Specialists," focusing exclusively on a specific high-growth industry to leverage their sponsor team's deep domain expertise and professional network for sourcing proprietary deals. This strategy offers enhanced credibility with target companies, more insightful due diligence, and a clearer value proposition for public market investors. However, the pool of potential targets is significantly narrowed, making the SPAC vulnerable to downturns or valuation shifts within that single sector. SIM Acquisition Corp. I (SIMA) exemplifies this approach with its explicit strategic focus directed towards the "dynamic healthcare sector," aiming to identify and merge with an operating business in this space. In contrast, other SPACs rely on the reputation, track record, and extensive network of a "Marquee Sponsor" to attract high-quality targets and lend credibility to the transaction. This provides access to proprietary deal flow and the ability to attract targets that might otherwise pursue a traditional IPO. Oaktree Acquisition Corp. III Life Sciences Unit (OACCU) is a prime example, leveraging its affiliation with Oaktree Capital Management and Oaktree's specific expertise in value-driven acquisitions within the life sciences sector. A third, less common approach focuses on "Structural Arbitrage," seeking a competitive edge through the legal and financial structure of the SPAC itself. Pelican Acquisition Corporation Ordinary Shares (PELI) explicitly highlights its Cayman Islands domicile as a structural advantage intended to achieve "faster deal closures (15-20% quicker) and lower operating costs (10% lower per unit)". ## Financial Performance ### Revenue All pre-combination Special Purpose Acquisition Companies operate with a uniform financial model of zero operating revenue. This is by design, as the sole purpose of a SPAC is to act as a capital vehicle to acquire an actual operating business. Until a business combination is complete, there are no sales or commercial operations. The "growth" of the enterprise is entirely contingent on the successful execution of a merger. ### Profitability Net income results for SPACs are divergent and are not an indicator of operational health, as they are primarily a function of non-operating interest income from the trust account versus fixed general and administrative costs. {{chart_0}} The current high-interest-rate environment allows most SPACs to report positive net income as interest earned often exceeds their general and administrative expenses. For instance, Bold Eagle Acquisition Corp. (BEAGU) reported $2.72 million in interest income for Q1 2025, which easily covered its $268,126 in general and administrative expenses, leading to a net income of $2.45 million. However, a high cash burn from excessive operating or compensation costs can lead to a net loss, despite significant interest income. Siddhi Acquisition Corp (SDHI) reported $2.87 million in interest income for Q2 2025, but its $8.47 million in operating costs overwhelmed this income, driving a significant net loss of $5.61 million for the quarter. This illustrates how different levels of operating discipline and expense management lead to vastly different bottom-line results, even in the same interest rate environment. ### Capital Allocation The singular, overwhelming priority for capital allocation in SPACs is the preservation of funds within the Trust Account for a future business combination. The SPAC structure legally mandates that IPO proceeds be held in trust, primarily invested in U.S. Treasury Bills or money market funds. All capital allocation decisions are therefore geared towards successfully closing a merger. A secondary theme is the reliance on sponsor-funded working capital loans to cover operational expenses incurred during the search for a target. Roman DBDR Acquisition Corp. II (DRDB) exemplifies this funding model, with its sponsor and affiliates potentially providing Working Capital Loans up to $1.50 million to cover operational needs and transaction costs. These loans are often convertible into private placement warrants upon a successful merger, highlighting the sponsor's ongoing financial commitment. ### Balance Sheet The balance sheet structure of the SPAC industry is characterized by a paradox of being simultaneously cash-rich in the Trust Account and very limited in operational liquidity. {{chart_1}} While Trust Accounts hold hundreds of millions of dollars, such as DRDB's $236.18 million as of June 30, 2025, the cash available for day-to-day operations outside the trust is minimal, often less than $1 million. This precarious liquidity position is the direct cause of the "going concern" warnings issued by several companies. DRDB's explicit "substantial doubt about our ability to continue as a going concern," despite its significant trust balance, perfectly illustrates this liquidity paradox, creating a race against time to complete a merger before operational funds are exhausted.