Between late 2020 and early 2021, the SPAC (Special Purpose Acquisition Company) market experienced unprecedented growth. The number of SPAC IPOs increased by more than 400% compared to the previous year. A SPAC is a blank-check company created with the sole purpose of acquiring another company and taking it public through an alternative route. Major names such as Lucid Motors, an electric vehicle manufacturer, used a SPAC structure during this period to quickly access capital and investors. The hype around technology, low interest rates, and the promise of quick returns sparked a rush toward this new method of going public.
What Are SPACs?
A traditional listing occurs through an Initial Public Offering (IPO), in which a company offers shares to the public for the first time to raise capital. This process involves extensive due diligence, collaboration with investment banks, pricing through roadshows, and approval from regulators. Although time-consuming and expensive, an IPO gives investors a relatively transparent view of the company and its financial position.
A SPAC (Special Purpose Acquisition Company) offers an alternative route to the public markets. It is a shell company that raises money via an IPO with the intention of acquiring a privately held firm within a set time frame. Once a merger with a target company is agreed upon and approved by shareholders, the target is listed on the stock exchange through a reverse takeover. At the time of its creation, a SPAC has no operational activity or identified acquisition target.
The key difference between an IPO and a SPAC lies in the path to a public listing. While an IPO directly lists the operating company, a SPAC acts as an intermediary. For the target company, this often provides speed and greater control over valuation. For investors, however, it means placing trust in the SPAC sponsors, with limited transparency and elevated risk as a result.
What Drove the Peak?
The dramatic increase in SPACs had several causes. During the COVID-19 pandemic, interest rates were historically low, making saving unattractive and pushing investors to seek higher returns. Meanwhile, the stock market experienced a strong rebound, particularly in tech and growth sectors. SPACs offered a chance to invest early in fast-growing companies, often in industries such as electric vehicles, space exploration, and fintech, drawing both institutional and retail investors. Furthermore, companies going public via SPACs were allowed to present optimistic forward-looking projections, making them more appealing than traditional IPOs.
What Caused the Decline?
From mid-2021 onwards, the SPAC market began to cool. Many companies that went public through SPACs underperformed. Some had little to no revenue, let alone profit, and failed to deliver on their promises. Additionally, regulators like the U.S. Securities and Exchange Commission (SEC) increased scrutiny, raising concerns over transparency and conflicts of interest. As interest rates began to rise, safer investments like bonds became more attractive to investors. The hype turned into skepticism, and many SPACs ultimately failed to find a suitable acquisition target.
Lucid Motors
As mentioned earlier in the introduction, Lucid Motors was one of the most talked-about companies to go public via a SPAC during the peak of the market in 2021. The American electric vehicle manufacturer merged with the SPAC Churchill Capital Corp IV in a deal estimated to be worth around 24 billion dollars. The announcement sparked massive speculation, with Churchill’s stock price rising by more than 500 percent even before the deal was officially confirmed. Investors saw Lucid as the next Tesla and jumped in enthusiastically.
However, after the listing it became clear that expectations had been too high. Lucid faced production issues, delivered fewer vehicles than planned, and had to revise its forecasts multiple times. The stock price dropped significantly, resulting in major losses for many investors who had entered at the peak. Lucid’s trajectory is not an isolated case but part of a broader trend in which many SPAC-backed companies struggled to deliver on their promises. It clearly reflects the structural weaknesses of SPACs in an overheated market.
Conclusion
The rapid rise of SPACs in 2020 and 2021 highlights how quickly a financial structure can become popular when market conditions such as low interest rates, high liquidity, and investor optimism align. At the same time, the swift cooling of the market shows that sustainable value creation requires more than just promise and speed. For companies, the SPAC structure offered flexibility and access to capital, but for investors, it often came with limited transparency and higher risk. In the aftermath of the hype, the SPAC market appears more mature. SPACs still exist but are now approached with greater caution. This reflects a broader shift toward more critical risk assessment and fundamental analysis in capital markets.
