SPACs: Promise and Reality

In 2021, I launched 26 Capital Acquisition Corp., a SPAC focused on the gaming and leisure industry. The experience taught me lessons about markets, deal-making, and the gap between intentions and outcomes.

The Promise

SPACs—Special Purpose Acquisition Companies—emerged as an alternative path to public markets. The pitch was compelling: experienced sponsors would identify attractive private companies, negotiate mergers, and create value for shareholders through their expertise and networks.

For companies seeking to go public, SPACs offered advantages over traditional IPOs. Greater certainty of pricing. Faster timelines. The ability to share forward projections with investors. Access to sponsors who could add strategic value post-merger.

For investors, the structure included downside protection. If you didn't like the proposed merger, you could redeem your shares at trust value. Your capital was protected while you waited for the sponsor to find a target.

26 Capital

We raised approximately $240 million in 26 Capital's IPO. Our thesis was that the gaming and leisure space—which I'd studied for three decades—contained attractive private companies that would benefit from public market access.

We announced a merger with Okada Manila, one of the largest integrated resorts in the Philippines. The property was impressive: a $3 billion development with significant revenue and a strong position in a growing market.

The merger did not close. Disputes emerged with the counterparty over representations and closing conditions. After extensive negotiation and legal process, the transaction was terminated.

What Happened Next

When the merger was terminated, we followed the SPAC playbook exactly as designed. Approximately $275 million in trust proceeds were returned to public shareholders. Every investor who wanted their money back received it.

The company subsequently filed for Chapter 11 to address remaining corporate obligations—legal fees, administrative costs, and other expenses that had accumulated during the extended merger process.

I want to be clear about what this was and wasn't. This was a corporate bankruptcy, not a personal one. Public shareholders received their trust proceeds. The protective mechanisms built into the SPAC structure worked as intended.

Lessons Learned

Counterparty risk is paramount. In a SPAC merger, you're betting on the target company's willingness and ability to close. No amount of diligence can fully protect against a counterparty that won't perform. Choose carefully.

Timelines matter. SPACs have deadlines. The pressure to announce a deal before time runs out can lead to compromises. I'd encourage future sponsors to build more time cushion than they think they need.

Complexity kills. Cross-border deals with multiple jurisdictions, competing stakeholder interests, and corporate governance disputes are difficult under any circumstances. Adding SPAC timeline pressure makes them harder.

Structure works. For all the criticism of SPACs, the trust structure did what it was supposed to do. Shareholders who wanted to redeem received their money. That's not nothing.

The Broader Context

The SPAC market of 2020-2021 was unusual. Hundreds of SPACs raised billions of dollars. Many found targets; many didn't. Some mergers created value; many didn't. The aggregate performance of the asset class has been disappointing.

But I don't think SPACs are inherently flawed. They're a tool, and like any tool, outcomes depend on how they're used. The best SPACs—led by experienced sponsors, targeting quality companies, with realistic expectations—can create value. The worst ones were essentially financial engineering exercises with no real strategic logic.

The market is now more selective. Fewer SPACs are launching. Investors are more discriminating. Sponsors with track records are scrutinized more carefully. This is probably healthy.

Looking Forward

I'm asked sometimes whether I'd launch another SPAC. The honest answer is: maybe, under the right circumstances. With the right target clearly identified. With a simpler structure. With more time.

But for now, my focus is on SpringOwl's core investment activities. We have capital to deploy, interesting opportunities to evaluate, and portfolio companies that need attention. That's where the energy goes.

26 Capital didn't work out as planned. I've explained what happened and why. I think the full record—including the return of capital to shareholders—tells a more complete story than headlines suggest.