In recent years, “exit” has become one of the most critical milestones for startups. In the biotech industry, traditional IPOs and M&As have been the main paths, but SPACs (Special Purpose Acquisition Companies) emerged as an alternative. This article reviews the historical background of SPACs, their mechanism, advantages and weaknesses, the reasons for their decline, and how they may evolve as part of future exit strategies.
Historical Background of SPACs
SPACs, also called “blank check companies,” originated in the 1990s. At first, they were small-scale vehicles mainly appealing to hedge funds and high-risk investors.
In the 2010s, legal reforms and regulatory improvements increased transparency, expanding SPAC use among tech and life science companies.
During the pandemic boom of 2020–2021, SPACs surged dramatically. In 2021 alone, more than 100 biotech and healthcare companies went public via SPAC mergers, creating what is now remembered as the “SPAC bubble”:contentReference[oaicite:0]{index=0}.
How SPACs Work: Advantages and Weaknesses
Mechanism
- The SPAC itself first raises capital through an IPO, which is held in a trust account.
- Within a set period (typically two years), it merges with a private company (the De-SPAC transaction).
- The target company effectively becomes publicly traded and can raise additional capital through PIPE (Private Investment in Public Equity).
Advantages
- Faster and cheaper than traditional IPOs.
- PIPE financing allows larger capital inflows.
- Valuation can be negotiated more flexibly compared to IPO book-building.
Weaknesses
- Weaker disclosure requirements than IPOs, increasing risk of overestimated valuations.
- Potential conflicts of interest due to sponsor promote shares.
- High post-listing volatility, with many companies underperforming in public markets.
Environmental Shifts and Decline
Since 2022, rising interest rates and investor caution have created headwinds for growth-focused SPAC companies. SEC regulatory tightening has further reduced the appeal of SPACs as a “shortcut” to public markets. High-profile failures, such as 23andMe’s bankruptcy and EQRx’s absorption into Revolution Medicines, have eroded investor trust. As a result, SPAC activity has contracted sharply, pushing the structure into a de facto decline phase.
Winners and Losers of the SPAC Era
The divergence between successful and unsuccessful SPAC-backed companies is striking.
Success Cases
- Roivant: Created multiple subsidiaries (“Vants”), sold Telavant to Roche for $7.1B, and Dermavant to Organon for $1.2B.
- Cerevel: Acquired by AbbVie for $8.7B, delivering returns to shareholders.
Failures and Contractions
- 23andMe: Once valued at $6B in 2021, but filed for bankruptcy in 2025.
- EQRx: Raised $1.8B but failed clinical milestones, eventually absorbed in 2023.
- Immatics/Tango: Suffered significant share price declines and reduced market valuations.
Prospects for Revival and the Evolution of Exit Strategies
Potential for Limited Revival
- Selective revival during market upcycles.
- Industry-specific SPACs (e.g., biotech, green tech) could regain niche relevance.
- More activity outside the U.S., including Europe and Asia.
Exit Strategy Evolution
- New models such as “SPAC → Listing → Rapid M&A” are emerging.
- SPACs are shifting from IPO substitutes to bridge financing ahead of M&A exits.
- They may serve as part of liquidity and capital strategy rather than a standalone exit path.
Conclusion: Redefining SPACs in Exit Strategies
SPACs peaked during the 2021 bubble but have since declined due to regulatory tightening, macroeconomic shifts, and repeated failures. However, they are unlikely to vanish entirely. Instead, SPACs may re-emerge in a new role—not as a universal IPO alternative, but as a bridge to liquidity and M&A-driven exits.
The concept of “exit” itself is evolving, and SPACs may still find relevance as part of biotech’s broader financial toolkit in the years ahead.
This article was edited by the Morningglorysciences team.
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