Latest / The Acquisition Talk with Fexingo: Mergers, Buyouts, and Business Sales for Operators / How SPACs Came Back Without the Hype
Transcript
- Lucas: So SPACs are back. But before you roll your eyes — this is not the circus of 2020. I'm looking at a deal that just closed this month, May 2026: a blank-check company called Aurora Acquisition Corp merging with an industrial analytics firm called DataMesh. Luna: I thought SPACs were dead after the SEC crackdown and the billions lost in de-SPACs that cratered. Lucas: That's what everyone assumed. And for a couple years, yeah, the market was ice cold. But quietly, starting late 2024, the structure got rebuilt. The excess is gone. In 2025, there were 58 SPAC IPOs — that's tiny compared to the 248 in 2020. But the ones that are happening now look completely different. Luna: Different how? I still see headlines about celebrity-backed shells looking for targets. Lucas: That stuff is the old playbook. This new wave is institutional. Aurora Acquisition Corp — ticker A-U-R-O — it raised $300 million in trust. That's the pool of cash sitting in escrow. In the old days, sponsors took 20% promote for putting up basically nothing. Now? Aurora's sponsor promote is capped at 10%, and half of that is tied to the stock trading above $12 for 20 days. Luna: So the sponsor doesn't get all their shares upfront — they have to earn them based on performance. Lucas: Exactly. And that's one of the biggest structural changes. The other is the pipe — the private investment in public equity that fills out the trust if too many shareholders redeem. In 2020, pipe investors had zero protection. They'd put in $100 million, the stock would drop, and they'd lose 50 percent. Now, pipe investors in the Aurora deal get a 1.5x liquidation preference — if the stock tanks, they get their money back before common shareholders. Luna: That's a huge shift. But doesn't that create a perverse incentive? The pipe investors are almost guaranteed to get out whole, so they don't care if the deal works long-term. Lucas: You're right to flag it. But the pipe investors here are Fidelity, BlackRock, and a couple of pension funds. They're not flippers — they're buying with a two-year lockup. So they have skin in the game. The liquidation preference is more about protecting against catastrophic failures, not giving an easy exit. Luna: Okay, walk me through the DataMesh deal specifically. What's the valuation, and why does it make sense for them to go public via SPAC instead of a traditional IPO? Lucas: DataMesh is a private company doing about $80 million in recurring revenue, growing 40 percent year-over-year. They got a $500 million enterprise value — so about 6.3 times revenue. A traditional IPO would have taken at least six months, with roadshows and pricing uncertainty. The SPAC gave them a locked-in valuation and access to the $300 million trust, plus a $150 million pipe. That's $450 million in cash on the balance sheet. Luna: But don't they have to worry about redemptions? If shareholders pull their money out of the trust, the cash shrinks. Lucas: That is the single biggest risk. In 2020, average redemptions were around 50 percent — meaning a $300 million trust could end up with only $150 million. This deal managed redemptions down to 14 percent. I called the DataMesh CFO — he told me they spent three months pre-clearing their largest institutional shareholders. They set up a virtual data room, gave each big holder a one-on-one walkthrough of the financials, and basically said: 'If you're not comfortable, tell us now, and we'll structure the deal so you can redeem without tanking it.' Luna: So they used transparency to keep the money in. That's almost the opposite of the old approach, where sponsors would just hope nobody redeems. Lucas: Right. And the SEC's new rules, effective from 2024, actually helped. They require SPACs to provide forward-looking financial projections in the proxy statement — which used to be optional. That forced DataMesh to show its numbers in detail, which built credibility. The old SPACs would put out these vague revenue targets; now you have to break down your assumptions. Luna: But even with all these improvements, the track record of de-SPACs is brutal. I saw a stat that only 35 percent of companies that went public via SPAC in 2020-21 are trading above $10. That's a 65 percent failure rate. Why would an operator choose this route? Lucas: Because the alternative — a traditional IPO — is also brutal for companies under $1 billion in revenue. The IPO market in 2025 only saw 120 listings, and most were large-cap. For a company like DataMesh, a traditional IPO would mean leaving 15 to 20 percent on the table as underpricing, plus underwriting fees of 4 to 5 percent. The SPAC route cost them about 6 percent in fees total, including the sponsor promote, and they got certainty of execution. Luna: Certainty of execution — that's the big selling point. But what about the warrants? In the old deals, warrants were a huge dilutive headache. Lucas: Good point. In this new wave, warrant structures are much cleaner. Aurora issued warrants with a $12 strike, callable only if the stock trades above $18 for 20 days. That gives the company a clear path to equity capital. And the warrants expire in three years, not five. So there's less overhang. Luna: What about the post-merger stock performance? Has the new structure actually led to better returns? Lucas: Early data from 2025 deals shows median returns of plus 8 percent after six months. That's not spectacular, but it's way better than the 2020 cohort, which dropped 40 percent on average. The new SPACs are trading more like small-cap IPOs — volatile but not catastrophic. And because the promote is lower, less value is extracted upfront. Luna: So for an operator listening who might be running a $50 million revenue company — should they be talking to SPAC sponsors? Lucas: Only if they have a really clean story. The bar is higher now. DataMesh had 90 percent gross margins, a patent portfolio, and a blue-chip client list including Siemens and GE. If your business is growing 20 percent with thin margins, a SPAC won't save you. The market is discriminating now. Luna: What about the sponsors themselves? In 2020, anyone with a name could start a SPAC. Are the new sponsors more credible? Lucas: Absolutely. Aurora's sponsor is a group of former Goldman Sachs bankers who spent two years building a relationship with DataMesh before even filing the S-1. They didn't just find a target through a broker. The days of 'celebrity CEOs with no deal experience' are over. The SEC now requires sponsors to disclose their background and any conflicts in detail. Luna: So the market has self-corrected? Or is this just a temporary cycle before the excess comes back? Lucas: I think it's a genuine correction, but there's a risk: if the 2025-26 vintage performs well, you'll see more capital flood in, and standards could slip again. Right now, the supply of new SPAC IPOs is constrained because institutional investors are only backing sponsors with a track record. But if returns stay positive, that discipline could erode. Luna: Let's talk about a specific risk I've seen: shareholder lawsuits. The old SPACs faced tons of litigation over misleading projections. How are the new deals handling that? Lucas: They're including 'safe harbor' provisions for forward-looking statements, which the SEC's new rules explicitly allow. And they're getting fairness opinions from independent advisors. DataMesh got one from Evercore — that gives shareholders some comfort. But the real protection is the earnout structure: if the projections are wrong, the sponsor doesn't get its full promote. Luna: That aligns incentives better. But I'm still skeptical about one thing: the pipe investors getting a liquidation preference. Doesn't that make it a debt-like instrument rather than equity? Lucas: It's a hybrid. And you're right to call it out — some critics call it 'equity with a parachute.' But from the company's perspective, it's still equity in the sense that the pipe investors don't have voting rights, and the preference is only on liquidation. During normal operations, they're common shareholders. The structure is designed to attract long-term capital without the company taking on debt. Luna: What about the timeline? How long does a modern SPAC deal take from announcement to close? Lucas: The Aurora-DataMesh deal took 14 weeks from announcement to close. That's much faster than the six to nine months it often took in 2020. The SEC has streamlined the review process for deals that meet the new standards. And because the trust is only 18 months, sponsors are incentivized to move quickly. Luna: So if I'm a private company considering this, what's the single most important number I should focus on? Lucas: The redemption rate. That dictates how much cash you actually get. If you can get it below 20 percent, the deal economics work. Above 40 percent, you're better off staying private or doing a traditional IPO. The key is pre-clearing your largest shareholders — that's the operational secret that separates the good deals from the bad. Luna: And for the operators listening who might be approached by a SPAC sponsor — what red flags should they watch for? Lucas: Number one: if the sponsor promote is above 15 percent, walk away. Number two: if the warrant terms are vague or the strike price is below $10, that's a problem. Number three: if the pipe investors aren't named and locked up, you're taking on the risk. And last: if the sponsor has no industry experience relevant to your business, you're going to waste time. Luna: So the SPAC market has matured. But it's still a niche tool for a specific type of company. Lucas: Exactly. It's not a replacement for the IPO market. But for a company like DataMesh — high growth, recurring revenue, institutional customer base — it's a legitimate path. The key is that both sides have learned from the 2020 disaster. The question is how long that memory lasts. Luna: What about the broader market? With interest rates where they are in May 2026, does that help or hurt the SPAC math? Lucas: Rates are still elevated — the ten-year Treasury is around 4.4 percent. That actually helps the trust: the money sitting in escrow earns interest, so shareholders have less incentive to redeem for a small gain. In 2020, with near-zero rates, there was no cost to pulling money out. Now, the trust is earning a decent return, which stabilizes it. Luna: So the macro environment is actually supportive of the new SPAC model. That's an interesting twist. Lucas: It is. And the IPO market still hasn't fully reopened for small-cap companies. So SPACs fill a gap. But the real test will come when rate cuts happen — if the trust yield drops, redemptions could spike again. Luna: Okay, final question: what's the one thing you think most operators get wrong about SPACs in 2026? Lucas: They think it's still a 'dumb money' game. It's not. The smart money is back, but it's demanding real terms. If you approach a SPAC deal in 2026 like it's 2020, you'll get eaten alive. The structure is better, but the discipline required is higher. Luna: So the second act is quieter, smarter, but potentially more durable. Lucas: That's exactly right. And for the operator who does the work — pre-clears redemptions, gets a quality sponsor, structures reasonable warrants — the payoff can be real. It's just not a shortcut anymore.