SPAC Boom: The 2020-2021 Blank-Check Mania

Key Takeaways

• The SPAC boom produced 248 blank-check IPOs in 2020 and 613 in 2021, raising over $240 billion combined.
• A SPAC is a cash shell that goes public, then merges a private firm onto the market.
• Sponsor incentives and warrants diluted a $10 share toward roughly $5 of real cash.
• Average post-merger SPACs badly underperformed traditional IPOs, and many merged firms failed.

Background

A special purpose acquisition company, or SPAC, is a shell with no operations. It raises money in an IPO, parks the cash in a trust, and then has a deadline, usually two years, to find a private company to merge with. When the merger closes, the private firm becomes public in the shell's place. That final step is called a de-SPAC. If no deal closes in time, the SPAC liquidates and returns the trust cash to shareholders.

SPACs had existed for decades as a niche, lightly regarded corner of the market. What changed in 2020 was the setup around them. The Federal Reserve had cut rates to near zero during the pandemic and flooded markets with liquidity, pushing investors toward speculative growth stories. At the same time, traditional IPOs paused during the spring 2020 selloff, leaving a financing gap that the blank-check structure rushed to fill.

The pitch was seductive on both sides. For a private company, merging with a SPAC promised a faster, more certain route to public markets than a normal IPO, with the ability to advertise rosy forward projections that IPO rules discourage. For a sponsor, the team that launches the SPAC, the reward was the promote: typically founder shares worth about 20 percent of the IPO proceeds for a nominal price, a structure that paid off handsomely if any deal closed at all.

Headline names lent the format credibility. Hedge fund manager Bill Ackman raised about $4 billion in July 2020 for Pershing Square Tontine Holdings, then the largest SPAC ever. Venture investor Chamath Palihapitiya launched a series of SPACs branded IPOA through IPOF, earning the nickname the "SPAC King" in the financial press. When figures like these endorsed the structure, retail investors followed.

What Happened

The mania ran in two waves, a record 2020 followed by an even larger but shorter 2021, and then a long unwind.

• July 2020: Pershing Square Tontine Holdings raises about $4 billion, the biggest SPAC IPO to that point.
• June 2020: Electric-truck startup Nikola goes public by merging with VectoIQ Acquisition Corporation at roughly a $29 billion valuation.
• October 2020: Lordstown Motors lists on Nasdaq via a merger with DiamondPeak Holdings.
• Full-year 2020: 248 SPACs complete IPOs, a record, after only 59 in 2019.
• February 4, 2021: Short seller Hindenburg Research publishes a report on Clover Health, a Palihapitiya-backed de-SPAC, alleging an undisclosed Department of Justice inquiry.
• March 12, 2021: Hindenburg publishes a report alleging Lordstown's pre-orders were largely fictitious.
• April 12, 2021: SEC staff issue a statement that many SPAC warrants should be classified as liabilities, triggering hundreds of financial-statement restatements.
• October 2021: WeWork goes public via a merger with BowX Acquisition Corp. at about a $9 billion enterprise value.
• Full-year 2021: A record 613 SPACs complete IPOs, more than in any prior year.
• 2022: New SPAC issuance collapses and liquidations begin in earnest.
• January 24, 2024: The SEC adopts final rules tightening SPAC and de-SPAC disclosure.

The 2020 record was striking on its own. According to SPACInsider data summarized by Meridian, 248 SPACs completed IPOs in 2020, up from 59 in 2019, with proceeds widely reported in the range of $75 billion to about $83 billion. Skadden noted SPACs made up roughly half of all US IPOs that year, a more than 300 percent jump in count over 2019.

Then 2021 dwarfed it. A record 613 SPACs went public, raising figures reported around $162 billion by SPAC Research, with blank-check vehicles accounting for the majority of all US IPOs during the peak quarters. The first quarter of 2021 alone saw roughly 298 SPAC IPOs before the pace cooled. The SEC's April warrant statement marked the first hard brake, forcing accounting restatements across the industry and chilling new launches.

Why It Happened

The SPAC boom had several reinforcing causes, and pulling any one thread leaves the others intact.

The first was the incentive structure for sponsors. A sponsor typically received founder shares equal to about 20 percent of the money raised, paid for at a nominal price. That promote rewarded closing a deal far more than closing a good one, because the founder stake was worth millions even if the merged company later cratered. The clock made it worse: with a two-year deadline and the choice between a mediocre merger or returning the cash and earning nothing, the structure pushed sponsors toward almost any deal.

The second was dilution that ordinary buyers rarely understood. A SPAC sells units at $10, but the founder promote, warrants, underwriting fees, and the right of investors to redeem at $10 before a merger all drain cash from the shell. Research by Stanford's Michael Klausner, NYU's Michael Ohlrogge, and Emily Ruan found that for SPACs merging in 2019 and early 2020, the net cash left behind each pre-merger share fell to about $5.70 at the median, down from the nominal $10. A buyer paying $10 was, on average, getting roughly half that in real cash backing the deal.

The third was the projection loophole. Unlike a traditional IPO, where forward financial forecasts carry heavy legal risk, a de-SPAC merger was treated as a deal where targets could publish aggressive multi-year revenue projections. Pre-revenue companies, especially in electric vehicles and space, used those slides to justify multibillion-dollar valuations for products that did not yet exist. Nikola, for example, was valued around $29 billion before it had a truck in production.

The fourth was reflexive enthusiasm and celebrity endorsement. Sponsors like Palihapitiya and Ackman gave the format a stamp of sophistication, and retail buyers piled into "pre-deal" SPACs hoping to guess the next hot merger. Prices rose because buyers bought, not because cash flows justified it, which is the signature of a bubble.

By the Numbers

• 2020 SPAC IPOs: 248 blank-check IPOs completed, up from 59 in 2019. (SPACInsider via Meridian; Skadden)
• 2020 proceeds: widely reported between about $75 billion and $83 billion, depending on the data provider. (Skadden; SPAC Research via reporting)
• 2021 SPAC IPOs: a record 613 completed, raising figures reported around $162 billion. (SPACInsider via Meridian; SPAC Research via reporting)
• Largest SPAC: Pershing Square Tontine raised about $4 billion in July 2020. (Better Markets)
• Dilution: net cash per pre-merger SPAC share fell to roughly $5.70 at the median from a nominal $10. (Klausner, Ohlrogge & Ruan)
• Post-merger returns: SPACs that merged during the bubble near $15 a share fell to mean and median prices of about $9.01 and $7.09 by December 2021. (Klausner, Ohlrogge & Ruan)
• Nikola valuation: about $29 billion at its June 2020 de-SPAC. (contemporaneous reporting)
• WeWork: went public via BowX in October 2021 at about a $9 billion enterprise value. (contemporaneous reporting)
• 2023 losses: Bloomberg estimated about $46 billion in losses from SPAC-merged firms that went bankrupt in 2023. (Better Markets, citing Bloomberg)

Aftermath

The unwind was brutal and broad. As money tightened in 2022, new SPAC issuance dried up and hundreds of shells failed to find deals. Reporting put 2022 SPAC liquidations above $12 billion by October, with the total climbing as sponsors raced to wind down before a new 1 percent stock-buyback excise tax took effect. Bloomberg later estimated that SPAC-merged companies which went bankrupt in 2023 cost investors roughly $46 billion.

Several marquee de-SPACs ended in fraud findings or failure. Nikola founder Trevor Milton was convicted in October 2022 of one count of securities fraud and two counts of wire fraud, and was acquitted on a second securities-fraud count; he was sentenced to four years in prison, fined $1 million, and ordered to pay $168 million in restitution. Nikola the company had separately settled SEC charges for $125 million in December 2021 and filed for Chapter 11 bankruptcy in February 2025. Lordstown Motors filed for bankruptcy in June 2023 and settled SEC charges in February 2024 over misleading statements about its truck pre-orders. WeWork, valued at about $9 billion at its 2021 merger, filed for Chapter 11 in November 2023.

Regulators tightened the rules. The April 12, 2021 SEC staff statement on warrant accounting forced a wave of restatements that ended the easy launch window. Then on January 24, 2024, the SEC adopted final rules, by a 3-to-2 vote, that require detailed disclosure of sponsor compensation and conflicts of interest, tabular dilution disclosure, and stricter treatment of de-SPAC financial projections. The rules also make the private target a co-registrant on the merger filing, so its officers and directors sign and assume liability much as they would in a traditional IPO. SEC Chair Gary Gensler framed the goal as giving de-SPAC investors the "time-tested" protections of a normal IPO.

Lessons for Investors

1. Follow the incentives of the person selling the deal. A SPAC sponsor's roughly 20 percent promote paid off when any merger closed, not when a good one did. Whenever a promoter is paid for completing a transaction rather than for its outcome, expect deals that favor the promoter. Ask who gets paid, when, and whether their payout survives your losses.

2. Know what actually backs each share. A $10 SPAC share carried only about $5.70 of real cash at the median after promote, fees, and warrants. The headline price is not the cash value. Before buying any pooled or structured vehicle, find the net asset value behind a unit and compare it to the price you are paying.

3. Treat forward projections as marketing, not fact. De-SPAC targets used multi-year revenue forecasts to justify huge valuations for products that did not exist, as Nikola did at a $29 billion valuation with no truck in production. Hockey-stick projections from a pre-revenue company are an advertisement. Discount them heavily, or ignore them.

4. Celebrity endorsement is not due diligence. Backing from well-known investors drew retail buyers into deals that later collapsed, and several came under regulatory scrutiny. A famous name on the sponsor line tells you nothing about the underlying business. Do your own work on the company you would actually own after the merger.

5. A boom built on a financing loophole tends to close with the loophole. The SPAC surge thrived partly because de-SPAC mergers escaped some IPO-level disclosure and liability. Once the SEC closed that gap with warrant accounting in 2021 and full rules in 2024, the easy issuance stopped. When an asset class depends on a regulatory soft spot, assume that spot will eventually be tightened.

Frequently Asked Questions

What was the SPAC boom in simple terms? The SPAC boom was a surge in blank-check companies, shells that raise cash in an IPO and then merge a private firm onto the market, with 248 such IPOs in 2020 and 613 in 2021. Most of the merged companies later underperformed or failed.

Why did the SPAC boom happen? Near-zero interest rates and pandemic liquidity pushed investors toward speculative deals, and the SPAC structure offered a fast route to public markets with loose rules on projections. Sponsor incentives that rewarded closing any merger, plus celebrity promoters, kept the wave growing until accounting rules and rising rates ended it.

How much money was involved in the SPAC boom? SPACs raised over $240 billion across 2020 and 2021, with the 248 IPOs of 2020 and a record 613 in 2021. Bloomberg later estimated that SPAC-merged firms going bankrupt in 2023 alone cost investors about $46 billion.

Could the SPAC boom happen again today? A speculative financing fad can always recur, but the specific conditions changed. The SEC's 2021 warrant statement and its January 2024 final rules added IPO-level disclosure, dilution tables, and target liability, removing much of the advantage that powered the original boom.

What is the main lesson from the SPAC boom? The single most transferable takeaway is to check the incentives of whoever is selling a deal and the real cash value behind each share. When a promoter is paid to close a transaction and the headline price hides heavy dilution, the structure itself is the risk.

Sources

1. U.S. Securities and Exchange Commission. SEC Adopts Rules to Enhance Investor Protections Relating to SPACs, Shell Companies, and Projections, Press Release 2024-8, January 24, 2024. https://www.sec.gov/newsroom/press-releases/2024-8
2. U.S. Securities and Exchange Commission, Office of the Chief Accountant and Division of Corporation Finance. Staff Statement on Accounting and Reporting Considerations for Warrants Issued by SPACs, April 12, 2021. https://www.sec.gov/newsroom/speeches-statements/accounting-reporting-warrants-issued-spacs
3. Klausner, M., Ohlrogge, M. and Ruan, E. A Second Look at SPACs: Is This Time Different? Harvard Law School Forum on Corporate Governance, January 24, 2022. https://corpgov.law.harvard.edu/2022/01/24/a-second-look-at-spacs-is-this-time-different/
4. Skadden, Arps, Slate, Meagher & Flom LLP. The Year of the SPAC, 2021 Insights, January 2021. https://www.skadden.com/insights/publications/2021/01/2021-insights/corporate/the-year-of-the-spac
5. Skadden, Arps, Slate, Meagher & Flom LLP. SEC Adopts Final Rules Affecting SPACs and De-SPACs, January 31, 2024. https://www.skadden.com/insights/publications/2024/01/sec-adopts-final-rules-affecting-spacs-and-despacs
6. Grant Thornton. SEC staff addresses warrants issued by SPACs, April 2021. https://www.grantthornton.com/insights/articles/audit/2021/snapshot/april/sec-staff-addresses-warrants-issued-by-spacs
7. Meridian Compensation Partners. The Aftermath of the 2021 SPAC Frenzy (citing SPACInsider data). https://www.meridiancp.com/insights/the-aftermath-of-the-2021-spac-frenzy/
8. Better Markets. SPACs + Crypto = Buyer Beware (citing Bloomberg loss estimate). https://bettermarkets.org/analysis/spacs-crypto-buyer-beware/

Disclaimer

This article is educational content only and is not financial advice. Nothing here is a recommendation to buy, sell, or hold any security. Consult a licensed advisor before making investment decisions.