Key Differences in Disclosure and Due Diligence Requirements
A few years ago, special purpose acquisition companies (SPACs) were marketed as a faster, lighter alternative to traditional IPOs. A SPAC is a blank check entity with no business operations, created to access capital markets quickly and go public based solely on an investment thesis, with the purpose of acquiring a target private company and taking it public within a set timeframe.
Between 2019 and 2021, the demand for SPAC investment increased 11 times, from $13 billion to $143 billion. In 2021 alone, there were 242 SPAC IPOs with an average IPO size of $334.9 million, reflecting the rapid growth and popularity of this route to the public markets.
This shift matters because many founders and deal teams still underestimate how dramatically obligations change once a target company enters the DeSPAC phase. Many SPACs became too aggressive and overpaid for acquisitions, which has impacted their ability to deliver the promised value to investors. Regulatory reforms introduced in the United States in 2024 closed several long-standing disclosure gaps that SPAC structures previously relied on. As a result, assumptions that once accelerated deals now attract heightened regulatory and investor scrutiny.
What Is a SPAC and How Does the SPAC Process Work?
The question of what is a SPAC often surfaces late in deal discussions, yet the answer shapes the entire transaction lifecycle. A SPAC (Special Purpose Acquisition Company) is a publicly listed shell entity formed to raise capital through an IPO for the sole purpose of identifying and merging with a target private company through a business combination. This business combination is the core of the de-SPAC process, facilitating the transition of the target private company into a publicly traded entity. SPAC sponsors and SPAC directors play a key role in guiding the SPAC through its lifecycle, from IPO to business combination, with founder shares typically granting the sole right to elect the SPAC directors before the de-SPAC process. Until an acquisition is completed, the raised capital is held in trust.
For investors, this is a calculated trade-off. Redemption rights limit downside risk, but they also mean that confidence is provisional. That confidence is tested later—during the DeSPAC.
Understanding DeSPAC Transactions
A deSPAC (or de-SPAC) transaction occurs when a SPAC merger takes place between a SPAC and a private operating company, effectively taking it public without a traditional IPO. After the merger, the target company becomes a public entity and operates as a combined company listed on a stock exchange. This is the inflection point where regulatory tolerance ends and operating reality begins.
Once a private company agrees to a SPAC acquisition, it becomes subject to public-company disclosure obligations. In substance, regulators treat the transaction as an IPO, regardless of its merger-based legal structure. The de-SPAC process is often shorter and more direct than a traditional IPO, sometimes taking as little as 3 to 4 months compared to up to 24 months for an IPO. SPACs can also raise additional public equity through PIPE (Private Investment in Public Equity) deals to ensure sufficient capital for the transaction.
Once a target company is identified and a SPAC merger is announced, the SPAC’s public shareholders will vote for or against the transaction and separately decide whether to redeem their shares or not. Shareholder redemptions in SPAC transactions can reduce available capital and may dilute existing owners if additional funding is required.
This is central to understanding SPAC vs DeSPAC differences: what was once a sponsor-driven vehicle becomes an operating issuer accountable to public shareholders.
From an investor standpoint, this transition reframes the entire risk profile. The focus shifts from sponsor credibility to financial resilience, governance maturity, and the reliability of reported information.
SPAC vs DeSPAC: A Typical Deal Timeline
The SPAC lifecycle is often described as a single transaction, but in practice, it unfolds in distinct phases with very different risk profiles. The early SPAC stage is largely structural, shaped by sponsor incentives, capital mechanics, and redemption protections. Risk is contained, and investor judgment is provisional. That changes once a target is identified.
SPAC transactions move from a sponsor-driven structure into a DeSPAC phase where disclosure discipline, diligence depth, and IPO-level scrutiny define outcomes.
SPAC Formation
Sponsor structure, capital setup, trust account
SPAC IPO
Limited disclosures, redemption protections
Target Search
Preliminary diligence and valuation framing
Diligence Kick-Off
Full operating review and IPO-level disclosures
Regulatory Review
Proxy filings, SEC comments, investor scrutiny
Closing & Listing
Merger completes, public company obligations begin
The DeSPAC phase marks a clear shift from structure to substance, as operating performance, disclosures, and governance come under IPO-level scrutiny. The timeline below shows where this transition happens, how review intensity accelerates, and why most regulatory friction, valuation pressure, and investor decision-making concentrate between diligence kick-off and closing.
SPAC vs DeSPAC: Disclosure Requirements Compared
Disclosure expectations change sharply once a transaction enters the DeSPAC phase. During the SPAC IPO stage, disclosures are intentionally limited because there is no operating business to evaluate. Investors receive transparency around sponsor background, capital structure, trust protections, and acquisition risk—but little else.
In contrast, DeSPAC disclosure mirrors the standards applied to traditional IPOs. The SPAC must provide several disclosures detailing information about the private company it plans to acquire and how the merger will be settled. The SPAC will typically need to solicit shareholder approval for a merger and will prepare and file a proxy statement, which outlines the terms of the transaction, provides key information about the target company, and is essential for regulatory compliance. Target companies are expected to provide several years of audited financial statements, detailed management discussion and analysis, comprehensive business risk disclosures, executive compensation information, and pro forma financials reflecting the post-merger structure.
| Dimension | SPAC Phase | DeSPAC Phase |
|---|---|---|
| Primary Focus | Sponsor credibility and deal structure | Operating performance and disclosure quality |
| Disclosure Scope | Structure, incentives, trust mechanics | Audited financials, MD&A, risk factors, governance disclosures |
| Due Diligence Depth | Limited, sponsor-led review | Deep diligence across financial, legal, tax, and operations |
| Investor Risk Profile | Partly limited by redemption rights | Direct exposure to company fundamentals post-close |
| Financial Projections | Often narrative-led, lighter verification | Assumption-backed, tested, and disclosure-sensitive |
| Deal Friction Risk | Lower unless structure is flawed | Higher if disclosures, data, or reporting don’t reconcile |
Key takeaway: The DeSPAC phase is where the operating company is fully tested—by investors, advisors, and regulators—so disclosure discipline and diligence readiness matter more.
For investors, this difference is decisive. The DeSPAC phase is where valuation assumptions are validated—or challenged—by underlying data. The regulatory alignment of DeSPACs with IPO standards is one of the most consequential developments in modern SPAC vs DeSPAC analysis.DeSPAC filings fail on avoidable issues: inconsistent versions, unsupported projections, and missing audit trails. If you want to reduce SEC-style follow-ups and investor friction, review how a structured virtual data room for IPO setup supports disclosure readiness.
Due Diligence: How Investor Expectations Shift
Disclosure tells investors what you want them to see. Due diligence is the process of checking whether it stands up. In the SPAC phase, that work is naturally limited because there is no operating business yet. The attention stays on the sponsor—who they are, how they’re incentivised, whether conflicts are managed, and whether the structure is clean.
Once a target is in play, the tone changes quickly. The review becomes broader and far more demanding, often under tight deadlines. Investors and advisors start pulling apart the fundamentals: how revenue is actually earned, whether margins are repeatable, what the tax position looks like, where legal or regulatory issues might sit, and whether operations can support life as a public company.
In practice, investors usually start with a few “truth tests”: revenue durability, margin drivers, cash conversion, and the reliability of internal reporting. If those pieces are late, inconsistent, or hard to reconcile, the deal doesn’t always collapse—but the economics often shift. You’ll see more follow-up questions, slower sign-offs, stricter disclosure language, and sometimes a valuation haircut or revised terms.
After shareholders approve the merger by vote, both parties conduct a final round of due diligence, including a thorough review of all financial and accounting information, to ensure all pertinent details are received.
The Role of Virtual Data Rooms in SPAC and DeSPAC Deals
As disclosure and diligence expectations converge with IPO standards, virtual data rooms have become essential deal infrastructure rather than administrative tools. For investors, a well-structured data room signals preparedness, transparency, and control. Virtual data rooms also facilitate the secure sharing and review of sensitive accounting documents, which are critical for due diligence in SPAC and DeSPAC transactions.
In SPAC and DeSPAC transactions involving acquisitions, secure platforms designed specifically for virtual data rooms in M&A transactions allow multiple stakeholders to review sensitive documents in parallel, while maintaining version control and audit trails. This becomes even more important during DeSPAC reviews, when underwriters, auditors, PIPE investors, and legal teams conduct overlapping diligence.
Where the DeSPAC begins to resemble a traditional listing, platforms built for IPO-level disclosure workflows play a critical role. They support staged access, regulator-ready documentation, and rapid response to follow-up questions—reducing execution risk at the most sensitive stage of the transaction.
Financial Projections: A Key Difference in SPAC vs DeSPAC
One of the most debated aspects of SPAC vs DeSPAC transactions is the treatment of financial projections. Historically, SPACs relied on broader safe-harbour protections to present forward-looking forecasts. That gap has narrowed significantly.
Today, projections are expected to be supported by documented assumptions, sensitivity analysis, and reconciliation with historical performance. For investors, this shift is welcome. Forecasts are no longer viewed as aspirational narratives, but as testable inputs into valuation and risk models.
| Dimension | SPAC Phase | DeSPAC Phase |
|---|---|---|
| Regulatory Treatment | Broader safe-harbour protections for projections | Narrowed tolerance aligned with IPO expectations |
| Nature of Forecasts | Often aspirational and narrative-driven | Testable inputs tied to valuation and risk analysis |
| Assumptions Support | High-level explanations accepted | Documented assumptions and sensitivity analysis expected |
| Link to Historical Performance | Loose or illustrative alignment | Clear reconciliation with historical results required |
| Investor Interpretation | Used mainly for directional context | Scrutinised as part of diligence and valuation models |
| Risk of Unsupported Optimism | Often tolerated at early stages | Triggers heightened scrutiny and disclosure risk |
Investor lens: In DeSPAC transactions, projections need to withstand the same challenge as historical data. Optimism without evidence now weakens confidence rather than strengthening the story.
For companies entering a DeSPAC transaction, this means forecasts must be diligence-ready. Unsupported optimism now increases scrutiny rather than enthusiasm.
Where DeSPAC Deals Lose Momentum
Even well-advised deal teams can run into issues that slow the process down. The problem is rarely one dramatic failure. More often, it’s a series of smaller gaps that make investors and reviewers work harder to verify the story—especially when timelines are tight.
The issues that most often create friction include:
- Inconsistent financial reporting across periods, formats, or versions
- Missing or incomplete customer and supplier contracts, or contracts that don’t match reported revenue
- Projections that are hard to support with assumptions, backlog data, or unit economics
- Unclear tax position, including unresolved filings, exposures, or messy entity structures
- Weak document control, such as outdated files, unclear ownership, or poor version history
None of these is always deal-breaking on its own. But when several show up together, reviews slow down, follow-up questions multiply, and regulatory scrutiny becomes more likely. From an investor’s perspective, that uncertainty is priced in—usually through tougher terms, more protective deal structures, or a higher risk premium.
Why the SPAC vs DeSPAC Distinction Matters Today
Regulatory tolerance has shifted decisively. The DeSPAC phase now operates under IPO-level scrutiny in practice, not just in theory. For deal teams, this means higher disclosure discipline, deeper diligence expectations, and greater reliance on structured data management.
Understanding SPAC vs DeSPAC is therefore essential for avoiding execution delays, regulatory friction, and post-listing surprises.
Final Thoughts
SPACs remain a viable route to public markets, but the rules have changed. The DeSPAC stage is where transactions are truly tested—by regulators, investors, and the market itself. If you are preparing for a deal, the safest assumption is IPO-level scrutiny from day one. Clear disclosures, disciplined diligence, and a well-managed virtual data room are no longer optional; they are foundational.