How SPAC Structures Have Evolved and What Investors Care About Today

Chris Cottone breaks down how SPAC structures have evolved and what investors are seeing in today’s market. He explains the role of rights, warrants, and time-to-close terms, and why longer SPAC timelines are becoming more attractive for both sponsors and investors. 

This clip offers a practical look at how structure impacts dilution, redemptions, and deal execution.

Disclaimer: Michael J. Blankenship is a licensed attorney and partner at Winston & Strawn LLP. Joshua Wilson is a licensed Florida real estate broker and holds FINRA Series 79 and Series 63 licensure. The content of this podcast is for informational and educational purposes only and should not be considered legal, financial, or compliance advice. All views and opinions expressed by the hosts and guests are their own and do not necessarily reflect the policies or positions of any regulatory agency, law firm, organization, or employer. Listeners should consult their own legal counsel, compliance teams, or financial advisors to ensure adherence to applicable regulations, including SEC, FINRA, and other industry-specific requirements. This podcast does not constitute a solicitation or recommendation for any financial products or services. Let's 

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Transcript

Mike B: So, you know, looking at the market today, you know, versus maybe five years ago, what is the current SPAC structure in terms that you're seeing? 

Chris C: SPAC structure is a big consideration for any SPAC team. I think that. There are a few ways to make your SPAC structure attractive to investors. Uh, normally there's a unit that's being offered, and of course all the units have a common stock, no surprise there.

But then you have a couple other ingredients that you could put into the unit to make it attractive to the market. One is a right and what a right is, is it's a, it is a security, but it's a security that only becomes. Common shares if you successfully dpac. And so the way that a right would work, for example, if you bought a unit that had a common and a one for 10, right?

That would mean for every 10 shares that you purchased in the IPO, if the company successfully completed its business combination, you would get one additional free share at the closing. So in a way, it's like a stock dividend, and we [00:01:00] see those right ratios anywhere from one to five all the way up to one to 20.

It's a very popular structure. Uh, it's like I said, it's like a stock dividend. The reason that SPAC teams like it, it is dilutive, but it's a one-time dilutive event that happens at the business combination. Uh, the other thing that it also does is it creates more shareholders when you de spac, which is always helpful when you're looking at de spac in case you have a, a scenario where you have higher redemptions, another security that's typically offered in a spac.

And we're seeing this come back more and more. And that's the warrant structure, the warrant structure. It's usually a five year warrant, and it's typically priced, uh, over 1150 a share where, you know, the IPO would take place at $10. So it's an above the market warrant. Most of our, uh, SPAC teams don't like warrants because there's a perceived overhang.

There's always a, uh, consideration that, uh, is somebody going to short against the Warren Ated in the market. And, um, I'm not sure of all the. Technicalities on how that happens, but a lot of people do find the view that even a warrant, which is not even an [00:02:00] outstanding security, can somehow, uh, be used in, in market trading.

So, um, most SPAC teams try not to issue a warrant, but sometimes they will do it to increase the time of the spec, which is the other part of, part of the structure that's important is how long do you have? To make your business combination. And the range that we're seeing right now, and this is, this is good for SPAC teams, good for people that are looking to, uh, form a spac.

And that's the time has gotten longer. People are becoming a bit more patient because there are good deals out there. So we used to see SPAC terms of 12 months, 15 months, and then you had to pay all kinds of money to ex extend those SPACs. Now, now you can get, um. 18 months, 24 months, uh, in many cases to complete the business combination.

So very attractive. I would recommend any SPAC team tracking, but as much time as you can. I know 24 months sounds like a long time, but you want more time than, than not, because I've seen so many groups that have had to pay millions of dollars in SPAC extensions, so it can get quite expensive.