Corporate Governance Risks in SPAC De-Merger Strategies: Assessing Shareholder Alignment and Capital Efficiency in the SPAC 4.0 Era

The Special Purpose Acquisition Company (SPAC) model has undergone a dramatic transformation since its speculative peak in 2021. By 2024, the market entered a new phase-SPAC 4.0-marked by stricter regulatory oversight, performance-based incentives, and extended due diligence timelines. These reforms aim to address the governance failures and shareholder misalignment that plagued earlier iterations, particularly the high-profile collapses of Nikola, Lucid Motors, and WeWork, according to a Foley analysis. However, despite these structural improvements, corporate governance risks in SPAC de-merger strategies remain significant, particularly in aligning sponsor interests with public shareholders and ensuring capital efficiency.

The Evolution of SPAC Governance: From Speculation to Discipline

The SPAC 4.0 framework, introduced in 2024, reflects a response to the market's near-collapse between 2021 and 2023, during which over 90% of de-SPAC companies traded below their $10 IPO price, as noted in the Foley analysis. Key reforms include:
- Performance-based sponsor compensation: Sponsors now earn rewards tied to stock-price hurdles or earn-outs, replacing the traditional 20% automatic promote. This aligns their interests with long-term shareholder value.
- Extended search periods: Sponsors have 30-36 months to identify targets, reducing pressure to complete rushed or speculative deals.
- Higher revenue thresholds: Target companies must demonstrate $50 million+ in annual revenue, filtering out undercapitalized ventures.
- Enhanced SEC disclosure rules: De-SPAC transactions now require co-registrant liability for target companies, expanded projections disclosures, and transparency around conflicts of interest, as discussed in a Harvard Law School piece.

These changes have contributed to a modest recovery in SPAC activity, with success rates projected to rise to 40-50% in 2025, though the reforms have not eliminated governance risks. For example, the SEC's 2024 enforcement actions against Digital World Acquisition Corp. (DWAC) and Northern Star Investment Corp. II-resulting in penalties totaling $19.5 million-highlight ongoing compliance challenges, as described in an SEC statement.

Shareholder Alignment: Progress and Persistent Gaps

A core issue in SPAC governance is the misalignment between sponsors and public shareholders. Sponsors are incentivized to complete de-SPACs regardless of fairness, while public shareholders retain the right to redeem shares for $10 plus interest. This structural conflict has led to calls for stronger shareholder protections, such as mandatory shareholder votes on mergers and binding fairness opinions (see the Harvard Law School piece noted above).

Empirical studies suggest SPAC 4.0 reforms have improved alignment. For instance, post-merger ownership stakes for non-redeeming SPAC investors typically increase by 5%, challenging claims of severe dilution, according to a Harvard analysis. However, academic analyses also reveal sector-specific vulnerabilities. Energy SPACs, for example, show mixed performance: positive returns at merger announcements but negative long-term returns, often linked to governance factors like the foreign origin of CEOs, as found in an academic study.

The demand for third-party fairness opinions has surged under SPAC 4.0, but these assessments remain controversial. The Harvard Law School piece notes that many fairness opinions lack methodological rigor and fail to address public shareholder interests adequately. This gap underscores the need for standardized evaluation frameworks to ensure transparency.

Capital Efficiency: Balancing Discipline and Innovation

Capital efficiency has become a focal point of SPAC 4.0. By requiring target companies to meet revenue thresholds and extending due diligence periods, the model aims to reduce speculative listings and improve post-merger performance. The average SPAC IPO size in 2024 rose to $168.4 million, according to a SPACInsider review.

However, regulatory burdens and litigation risks have increased costs. For example, the SEC's elimination of the PSLRA safe harbor for forward-looking statements has raised the stakes for accurate disclosures, as described in an SEC press release. Additionally, the rise of crypto-related SPACs in 2025 has introduced new complexities, including custody challenges and regulatory uncertainty, highlighted in a KJK analysis.

The Road Ahead: Mitigating Risks in SPAC 4.0

While SPAC 4.0 represents progress, investors must remain vigilant. Key risks include:
1. Litigation exposure: Delaware courts continue to enforce strict fiduciary standards, as seen in Solak v. Mountain Crest Capital LLC, where claims proceeded despite weak allegations, according to a Harvard review.
2. Sector-specific vulnerabilities: Energy and crypto SPACs face unique governance and regulatory challenges (see the academic study referenced above and the KJK analysis).
3. Structural conflicts: Agency costs and redemption pressures persist, requiring ongoing reforms in sponsor compensation and shareholder voting rights, as observed in the Foley analysis.

Conclusion

SPAC 4.0 has introduced critical safeguards to address the governance failures of earlier eras. Yet, the path to a fully aligned, capital-efficient model remains incomplete. Investors must weigh the benefits of performance-based incentives and extended due diligence against lingering risks like litigation and sector-specific volatility. As the market evolves, continued regulatory vigilance and structural innovation will be essential to realizing SPACs' potential as a disciplined alternative to traditional IPOs.