SPAC Structure and the De-SPAC Process

Underneath the acronym, a SPAC's structure is simple and almost entirely mechanical: it IPOs selling units, each usually made up of one common share plus a fraction of a warrant, and nearly all the cash raised goes straight into a trust account that just holds short-term Treasuries until a merger target is found. The company itself does no operating business, its only job before a deal is announced is to sit on that trust and search.

The two components shareholders actually hold

A SPAC unit typically splits apart shortly after the IPO into its common share and its warrant, which then trade separately. The common share carries a right most ordinary IPO shares don't: if shareholders vote against the proposed merger, or simply don't like the deal, they can redeem their shares for a pro-rata slice of the trust account instead of taking stock in the new merged company. The warrant is a longer-dated call option on the eventual merged company, usually struck well above the trust's per-share value, and it keeps trading regardless of whether a shareholder redeems their shares.

This redemption right is what makes SPAC shares behave less like ordinary equity and more like a cash-like instrument with an attached option, a shareholder's downside is largely floored near the trust value per share (assuming they redeem), while the warrant provides separate, uncapped upside exposure to a deal actually happening.

The de-SPAC process

Once the SPAC's sponsors find a private company to merge with, the process (called the de-SPAC) runs through a public announcement, a proxy filing describing the target's business and deal terms, a shareholder vote, and finally the closing, at which point the private company becomes listed simply by combining with the already-public shell. A concrete timeline: a SPAC with two years to find a deal announces a merger with a private logistics company in year one; over the following months it files a detailed proxy statement, shareholders vote to approve, some shareholders redeem their shares for cash from the trust rather than continue holding, and the combined company begins trading under a new ticker once the deal closes.

If no deal is found within the SPAC's deadline (commonly two years), the trust is liquidated and cash is returned to shareholders, the SPAC simply dissolves.

What this means in practice

Heavy redemptions at the shareholder vote can leave a de-SPAC merger with far less committed cash than the deal originally assumed, which is why many deals also raise a separate PIPE (private investment in public equity) alongside the SPAC merger, specifically to backstop against redemptions. Anyone analyzing a SPAC needs to track the trust value per share, the redemption deadline, and warrant terms separately, they behave like different instruments with different risks, even though they started life bundled in the same unit.