Special Purpose Acquisition Companies (SPACs) have been in such widespread use over the last year or two that an uptick in SPAC-related litigation appears inevitable. Indeed, the increase is already beginning. After a brief overview of SPACs, this article will identify some of the key litigation risk areas for these entities and the individuals who govern them.
SPACs have no commercial operations when they are formed. They are shell companies that exist to raise capital through an IPO to merge with a private operating company and take it public. Taking the private company public is often referred to as a “de-SPAC transaction.” The IPO funds are held in a trust account until that de-SPAC transaction occurs. After the target has been selected, the proposed merger is put to a shareholder vote. Prior to a merger, shareholders can opt to redeem their shares if they do not approve of the target or the terms of the deal.