SPACs Are Back. What Could Go Wrong This Time?

After a Lull, SPACs Stage a Comeback — But Risks Remain

After a sharp decline in 2022 and 2023, special purpose acquisition companies (SPACs) appear to be making a cautious comeback on Wall Street. As market conditions stabilize and investor sentiment improves, several new SPAC listings are emerging, and some high-profile mergers are once again making headlines. But as the market rediscovers its appetite for these blank-check firms, questions about regulatory scrutiny, deal quality, and investor returns continue to loom large.

A Short History: From Boom to Bust

SPACs exploded in popularity in 2020 and early 2021, with high-profile names like DraftKings, Lucid Motors, and Virgin Galactic opting for SPAC routes over traditional IPOs. Investors were drawn by fast-track public listings and speculative gains. However, by late 2021, the tide turned. Many companies that went public via SPACs failed to meet revenue targets, leading to poor post-merger performance.

In 2022, the U.S. Securities and Exchange Commission (SEC) introduced proposed rule changes to bring SPACs closer in line with IPO regulations, contributing to a sharp fall in new filings and deal completions. The market was further rattled by rising interest rates, inflationary pressure, and broader economic uncertainty.

The 2024 Revival: What’s Fueling the Optimism?

Now, in mid-2025, conditions have shifted once again. Several factors are contributing to the SPAC resurgence:

• Improved Market Sentiment: The U.S. Federal Reserve has paused rate hikes, and inflation has shown signs of cooling. This has lifted investor confidence across asset classes.

• Refined Strategies: New SPACs are more targeted, focusing on niche sectors such as clean energy, artificial intelligence, and fintech. Sponsors are also opting for more conservative valuation models.

• High-Profile Backers: Veteran investors like Bill Ackman and Chamath Palihapitiya have hinted at fresh SPAC activity, signaling renewed interest at the top.

According to data from SPAC Research, over 30 new SPACs have filed for listing so far in 2025, compared to just 17 during the same period last year.

Analysts Warn: Proceed with Caution

Despite the enthusiasm, market experts urge investors to remain cautious. Many of the concerns that plagued the previous SPAC wave remain unresolved.

“We’re seeing better-quality deals, but the fundamental problem hasn’t changed—many SPAC targets are pre-revenue or in highly speculative sectors,” said Rachel Liu, equity strategist at Horizon Capital. “That adds layers of risk compared to traditional IPOs.”

“Investors are more educated this time, but so are regulators,” noted David Thomas, partner at a New York-based M&A advisory firm. “SPACs are under the SEC microscope. Sponsors now have to think twice about projections and disclosures.”

Regulatory Changes Could Alter the Playing Field

The SEC’s final SPAC rule, which is expected to be enforced by the end of 2025, will likely mandate enhanced disclosure of conflicts of interest, sponsor compensation, and target company financials. This could dampen speculative behavior and make the SPAC process more transparent but also less flexible.

“While regulation adds complexity, it could actually legitimize SPACs in the long run,” added Thomas. “But it will raise the cost and time of bringing deals to market.”

Investor Outlook: Cautious Optimism

Retail and institutional investors are taking a more discerning approach. Instead of chasing SPACs blindly, many are evaluating them on the merits of their target companies, the experience of the sponsors, and the deal structure.

Moreover, redemptions—where investors choose to reclaim their funds rather than go through with the merger—remain high, suggesting investors are more skeptical than before. Still, deals with strong fundamentals and realistic financial forecasts are being well received.

“If SPACs stick to quality and transparency, there’s room for a healthy rebound,” said Mira Sen, fund manager at Polaris Asset Management. “But the era of quick profits with minimal diligence is definitely over.”

Lessons from the Past, Steps for the Future

While the SPAC structure offers unique benefits—such as speed, flexibility, and access to capital—it’s not without its pitfalls. Investors and regulators alike have learned that hype can mask poor due diligence, and that the path from SPAC merger to profitability is often longer than expected.

This time around, the focus appears to be on sustainable growth and operational maturity. Companies like energy storage firms and B2B SaaS providers are drawing more attention than untested consumer-facing tech ventures.

SPACs are back, but the landscape has evolved. With tighter regulations, more experienced sponsors, and a wary but watchful investor base, the current resurgence may avoid some of the chaos of the last cycle. However, whether the structure becomes a lasting fixture in capital markets or fades again with economic cycles depends on one thing—execution.