Over the last few years, Special Purpose Acquisition Companies (SPACs) have re-emerged as an alternative route for private companies to go public. Unlike a traditional IPO, a SPAC allows a private company to merge with a listed “blank check” entity, achieving public status more quickly and with greater deal flexibility.
At the heart of this process lie SPAC IPO agreements —a bundle of legal and commercial contracts that govern how a SPAC is formed, funded, and eventually merged with its chosen target. Understanding these agreements is crucial for sponsors, investors, and target companies alike.
What is a SPAC IPO?
A SPAC IPO involves raising funds from the public even though the entity itself has no operations. Its sole purpose is to identify and acquire a private company within a defined period (typically 18–24 months).
The ecosystem usually includes:
* Sponsors → Individuals or firms who create and manage the SPAC, contributing initial seed capital in exchange for founder shares.
* Public investors → Provide the bulk of funds through IPO units, usually a mix of shares and warrants.
* Target company → Eventually merges with the SPAC to achieve public listing.
For this ecosystem to function smoothly, a series of well-structured agreements is essential.
Core SPAC IPO Agreements
1. Underwriting Agreement
Defines the relationship between sponsors and underwriters. It sets out:
* Unit structure (shares + warrants) offered to investors
* Underwriting fees (some deferred until the merger closes)
* Rules around redemptions and escrowed funds
2. Sponsor (Letter) Agreement
Signed by sponsors, directors, and officers, covering:
* Lock-up periods for sponsor shares after the merger
* Sponsor commitments to vote in favor of the business combination
* Restrictions on selling or transferring securities before the deal closes
3. Investment Management Trust Agreement
As IPO proceeds are held in a trust, this agreement specifies:
* How funds can be used
* Redemption rights for investors
* Treatment of interest earned until a merger occurs
4. Private Placement Warrants Agreement
Sponsors often purchase additional warrants privately to fund working capital, deal-related expenses, and operating costs until a target is secured.
5. Registration Rights Agreement
Allows sponsors and early investors to register their securities post-merger so they can eventually resell them in public markets.
6. Business Combination Agreement
The most critical contract, executed when a target is identified. It:
* Sets the merger terms (merger, share swap, or asset acquisition)
* Defines representations, warranties, covenants, and closing conditions
* Establishes the legal framework for the de-SPAC process
Investor Protections Built into SPACs
SPAC structures are designed to safeguard public investors. Key protections include:
* Redemption rights if investors do not support the proposed merger
* Escrow of IPO proceeds, ensuring funds remain protected if no deal is finalized
* Sponsor “skin in the game”, aligning incentives between sponsors and investors
Regulatory and Market Landscape
Global regulators have been tightening SPAC rules to improve investor confidence. For example:
* SEC (US): Stricter disclosure norms and limits on sponsor promotes
*Singapore & Hong Kong: Minimum public float requirements and enhanced governance
*India: SEBI is still evaluating SPAC listings, with ongoing discussions on how best to adapt this model for local markets
Why These Agreements Matter
SPAC IPO agreements are more than just legal paperwork—they shape the balance of interests between sponsors, investors, and the target company. A transparent, well-drafted agreement can mean the difference between a successful listing and a failed de-SPAC.
For India and other emerging markets considering SPAC frameworks, understanding these agreements will be crucial to designing regulations that both protect investors and encourage innovation.
Final Thoughts
SPAC IPOs offer an innovative path to public markets, but their success hinges on the strength and clarity of the agreements that hold the process together. For sponsors, these agreements establish credibility. For investors, they provide security. And for target companies, they pave the way for a smoother listing journey.
In short: the agreements make the SPAC model work.
🔑 Key Takeaways
* SPAC IPO agreements define the roles, rights, and responsibilities of sponsors, investors, and target companies.
* Core agreements include underwriting, sponsor letter, trust management, private placement, registration rights, and business combination agreements.
* Investor protections such as redemption rights and escrowed funds build confidence in the model.
* Regulators worldwide are tightening SPAC rules; India is still evaluating its framework.
* A strong agreement framework is essential for ensuring transparency, alignment of interests, and deal success.
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