In the wake of the SPAC (Special Purpose Acquisition Company) boom of 2020–2021, the aftershock has reverberated across capital markets. As many SPAC deals faltered post-merger—trading below IPO prices or failing to deliver growth—an unanticipated trend emerged: SPAC-to-M&A conversions, where targets abandon the public route in favor of strategic acquisitions. While seemingly pragmatic, these pivots come with a minefield of legal, financial, and reputational risks.
What Is a SPAC-to-M&A Conversion?
When a SPAC fails to close a de-SPAC transaction or the post-merger entity underperforms significantly, the private company involved often seeks an alternate exit. Increasingly, that exit takes the form of traditional M&A—either by being acquired outright or merging with another strategic partner. The rationale is clear: mitigate public exposure, avoid SEC scrutiny, and preserve shareholder value. However, this shift is rarely seamless.
Landmine #1: Contingent Liabilities from Failed De-SPACs
One of the most pressing risks in SPAC-to-M&A transitions is the baggage left behind from the failed or aborted de-SPAC. These liabilities often include:
- Warrants issued under the SPAC structure that still exist on the cap table
- PIPE (Private Investment in Public Equity) commitments that may trigger legal consequences if canceled
- Earn-out provisions based on IPO valuation metrics that no longer apply
Acquirers must conduct forensic-level due diligence to trace and neutralize these instruments. Overlooking even minor contingencies can inflate acquisition costs or introduce post-close litigation risk.
Landmine #2: Reputational Drag from SPAC Fatigue
Targets coming out of failed de-SPAC attempts may carry a branding problem. Public investors, strategic buyers, and even employees may view them as “damaged goods.” This perception can:
- Depress valuation multiples in the M&A process
- Lead to tougher negotiations with acquirers
- Erode internal morale and talent retention
Buyers must weigh whether the target’s SPAC history signals structural weakness or mere market timing failure. A target with strong fundamentals but poor public-market fit could still offer strategic value—at the right price.
Landmine #3: Incomplete Governance Transition
Many de-SPAC hopefuls had already begun migrating to public-ready governance structures—adopting board compositions, SOX-compliance standards, and executive comp frameworks designed for the public sphere. When these companies pivot to M&A, their governance is often stuck midstream, leading to:
- Misaligned incentive packages
- Shareholder agreement conflicts
- Delayed integration post-acquisition
Strategic acquirers must harmonize governance quickly post-close or risk integration friction, especially when equity-based compensation had been tied to unrealized public valuations.
Also read: Post-Merger Culture Clash? How to Align Teams for Long-Term Success
The Bottom Line
SPAC-to-M&A conversions may look like a graceful exit, but beneath the surface lies a thicket of technical, financial, and psychological complexities. For corporate development teams and private equity buyers alike, these deals require a bespoke diligence model—one that accounts for hybrid instruments, reputational drag, and governance ambiguity.
