SPAC (Re-)Attack: Top Considerations for Issuers Considering a De-SPAC Transaction

Continued volatility in the equity capital markets has revived what was thought to be a zombie after 2022 – the SPAC. There is an old investment banking mantra that they can do an IPO in a down market or an up market, but not a volatile market. Similar to the volatility at the dawn of the COVID-19 pandemic lockdowns in early 2020, this new bout of market uncertainty has prompted SPAC sponsors and some investment banks to return to the SPAC IPO market with the confidence that companies will still pursue an alternative path to access the public equity markets, the de-SPAC. Since the start of 2025, a new class of blank check companies have gone public and some have announced plans to merge with target companies in areas like crypto, autonomous vehicles and nuclear power.

Private companies considering a de-SPAC transaction should be informed when undertaking a de-SPAC transaction as entering the public markets through this non-traditional IPO path has certain complexities. Given the fallout from the de-SPAC highs of 2020 and 2021, hard lessons were learned when many of the companies touting high-flying valuations during the peak of the de-SPAC boom traded below the SPAC’s original offering price or entered bankruptcy proceedings.

Regardless of the need for caution, SPACs and de-SPACs aren’t dead. Given the dearth of underwritten IPO activity since 2020, there is a much smaller supply of new technology companies on public markets than in 2020. With the tech IPO market still largely frozen (thawing slowly with the potential for the Chime and Circle IPOs to accelerate the thaw), public investors have limited opportunities to buy stakes in emerging companies in growth sectors, creating potential opportunities for private companies to look more closely at a SPAC transaction. Further, in a fast-changing or unstable market, de-SPAC transactions have the benefit of a negotiated valuation based on the agreement between the parties. With additional regulatory certainty since the adoption of the final SPAC rules in 2024 and recent Delaware statutory and caselaw decisions governing de-SPACs and business combinations, market participants have greater insight in approaching and evaluating the advantages and disadvantages associated with a SPAC transaction. In this new environment, we expect to see more discipline from SPAC sponsors and de-SPAC companies, both in deal size and expectations relating to redemptions by SPAC investors. Moreover, the number of SPAC sponsors has also narrowed and those bringing SPACs to market recently are generally the more seasoned players in the space, with more established track records.

Below are some key considerations for companies evaluating whether to pursue a de-SPAC transaction in the current market.

1. Revenue is still a mainstay to ensuring a successful entry into the public markets. The wave of companies completing de-SPAC transactions in 2020 and 2021 were plagued by numerous issues, but mostly they were often pre-revenue or early revenue with limited track records of execution of their long-term business plans. As with any successful IPO, companies contemplating a de-SPAC transaction should have line-of-sight to a sustainable revenue stream which can support the business through difficult fundraising periods.

2. Understanding and knowing the potential dilution for any SPAC being evaluated is critical. Newer SPACs have adopted the use of “rights” instead of warrants and have varying percentages of sponsor “promote” instead of the traditional 20% seen in 2020/2021 vintage SPACs. De-SPAC companies should assume full redemption by SPAC investors, plan accordingly when evaluating their minimum cash requirements and be mindful of the acceptable terms if raising a concurrent PIPE is required for the transaction to be consummated.

3. Because a de-SPAC company is a former “shell” company, Rule 144 is not available for resales of securities for one year from the date of filing of the Form 10 information in the Super 8-K (as described below) due to the applicability of Rule 144(i).

1. The inapplicability of Rule 144 makes it difficult for “affiliates” to resell shares during the first year post de-SPAC under a Rule 10b5-1 plan, even if such shares are registered on a resale registration statement. Most banks will not agree to be a counterparty to a Rule 10b5-1 plan when Rule 144 is not available. Limited trading volume in many de-SPAC companies, due to high redemptions by SPAC investors, also decreases the ability of 10b5-1 plans to be used effectively.
2. Further, a more detailed Form S-8 with a “reoffer prospectus” must be used to enable affiliates to effectively execute a “sell-to-cover” for shares they receive pursuant to the vesting of RSUs (broker-assisted sale of shares to satisfy withholding tax requirements). Regarding Form S-8, due to the de-SPAC company’s former “shell” status, a Form S-8 cannot be filed until 60 days after filing of Form 10 information on the Super 8-K. This means that equity grants made at closing of a de-SPAC transaction are typically granted contingent upon effectiveness of a Form S-8 – a long period for many early employees.

4. The de-SPAC company will need to file a resale shelf registration statement on Form S-1/F-1 due to the inability to use Form S-3/F-3 for 12 months following the filing of the Form 10 information for any shares issued in previously completed private placements, including any PIPE transaction.

1. As a result of the resale registration statement being on Form S-1/F-1, a de-SPAC company will need to file a 424 prospectus to “sticker” the Form S-1/F-1 for any Exchange Act filings (General Instruction VII.D of Form S-1 does not permit a former “shell” company to incorporate any Exchange Act filings by reference for three years).
2. If the de-SPAC company has a “fundamental change,” a Section 10(a)(3) update, or a material change in the plan of distribution, it will have to file a post-effective amendment to the S-1 and suspend sales under the registration statement pending effectiveness of the post-effective amendment.

5. A de-SPAC company has to file a “Super 8-K” disclosure within four business days of the closing of the de-SPAC transaction and include in such filing the information required by Form 10. The “Form 10 information” is typically incorporated by reference from the de-SPAC Form S-4/F-4. Note that timing considerations relating to financial statement staleness should be evaluated at this juncture of the transaction as well.