SPAC Due Diligence: Smarter Sponsor Background Checks

SPACs, also known as “blank check” companies, are back in the spotlight. These publicly traded vehicles offer a faster route to the public markets by acquiring private companies. But with that speed comes risk, especially when it comes to the people running the deal.

Unlike traditional IPOs, SPACs are speculative by nature. They rely heavily on the judgment and track record of their sponsors to find, evaluate, and acquire the right target. In 2023, 26% of SPACs failed to secure a deal, making it clear that who’s behind the SPAC matters just as much as the company it acquires.

What Makes SPAC Due Diligence Different?

Unlike traditional IPOs, SPACs don’t come with business fundamentals or earnings data. They’re essentially blank slates until a target company is identified. That makes the team behind the SPAC the central investment thesis. Investors are betting on their judgment, their connections, and their ability to choose the right company and execute a successful merger.

Here’s what smart diligence teams should focus on when evaluating SPAC sponsors:

1. Credentials and Experience: Can They Do What They Say?

Many SPAC sponsors tout specialized industry expertise like technology, healthcare, clean energy, and more, as their unique edge in finding the right acquisition target. But do their resumes back up those claims?

Vetting educational backgrounds, employment history, and prior executive roles helps validate that they have the experience necessary to identify, evaluate, and run a business post-merger. Inflated or misleading claims are red flags that could indicate poor judgment – or worse.

2. Litigation History: Are There Legal Red Flags?

Sponsors with ongoing or past litigation, especially shareholder lawsuits or regulatory investigations, can present risks to the success of the SPAC. Time spent dealing with lawsuits is time not spent identifying or supporting a strong acquisition. And a pattern of legal troubles may indicate deeper concerns about conduct or competence.

Be sure to look into civil litigation records, regulatory actions, and disputes stemming from previous deals. Patterns matter.

3. Reputation: What Does the Public Record Say?

SPAC sponsors are increasingly high-profile figures, former CEOs, politicians, and even celebrities. But media coverage and public perception can have a real impact on the success of a deal. A reputation for poor leadership, ethical lapses, or controversial public behavior could tarnish the SPAC’s image and reduce investor confidence.

Due diligence should include a review of press coverage, social media presence, and industry chatter to identify any potential reputational risks. And when a celebrity is involved, it’s critical to separate fame from business acumen.

Smarter Sponsor Background Checks

The unique structure of SPACs makes them particularly vulnerable to the strengths – or weaknesses – of their sponsors. Without the typical vetting processes of a traditional IPO, the burden shifts to investors and underwriters to do their homework.

At Intelligo, we help investors make smarter, faster, and more confident decisions by delivering deep, tech-driven background intelligence on the people behind the deal. In a market where SPACs rely heavily on the reputations and experience of their sponsors, our AI-assisted due diligence platform surfaces the insights you need to underwrite with confidence. Whether you're evaluating a new SPAC or assessing the leadership team of a target company, Intelligo ensures you're never in the dark about the people driving the investment. Get started by scheduling your demo today.