Although the most common way for a company to go public is through the traditional initial public offering (IPO) process, it’s not the only method. Although SPACs (special purpose acquisition companies) were first created in 1993, in the last few years they became a very popular way for a company to go public. It’s a little like a backdoor to going public because it happens when a private company merges with or is acquired by a publicly-listed SPAC (which is similar to a blank-check company). If you’re an employee (or former employee) of a target company of a SPAC, you may be wondering what happens to stock options or equity in a SPAC merger.
What is a SPAC?
SPACs are essentially shell companies. Their ‘special purpose’ is to acquire/merge with a private company and take it public. SPACs raise capital through an IPO. When a SPAC goes public, it cannot have a target company already identified. The new capital from the IPO stays in trust. The sponsors have two years to get shareholder approval and complete an acquisition/merger with the target company. A complete transaction is called de-SPACing.
By merging with a public blank-check company, a private company can go public without a traditional IPO. A direct listing is another option to go public without an IPO, though only a handful of companies have gone public this way. The most notable direct listing was Coinbase.
SPAC vs IPO Timeline and Process
What happens to stock options and equity in a SPAC?
As with many things in the land of mergers and buyouts, it depends! If you have stock in a company planning to go public via SPAC, you’ll want to get plan in place ahead of time. This article has more on pre-IPO/SPAC planning with equity compensation.
In many ways, a SPAC will mirror an IPO for current and former executives with stock. But the share adjustments and potential for additional volatility and uncertainty are notable differences.
Converting shares after the SPAC merger
Depending on the valuation, employees with equity or stock options will likely have the number of shares adjusted up or down. The exchange ratio will be finalized when the deal is. Since SPAC transactions are priced at $10/share, an adjustment is usually inevitable.
Unfortunately, according to research, SPAC public investors (vs the founders or target company) often pay the price of dilution. Dilution is to compensate SPAC sponsors and redemptions.
After the target company goes public via SPAC merger, the shares will trade on the open market.
Lockup period for employees after a SPAC
The traditional IPO process has a typical 180-day lockup period. After a SPAC merger, employees (and former employees) with stock may have to wait 6-12 months for all restrictions to be lifted.
It’s also possible that there’s no lockup period after the merger. But even if that happens, don’t expect liquidity on day one. Public companies need to have a trading policy and other procedures in place to be compliant with securities laws. It often takes time for internal teams to get ready…it could be a matter of months until you can sell.
But, sometimes employees are able to sell a preset number of shares after closing in a tender offer. There could also be price-based targets that allow some liquidity if the stock reaches a target stock price (and sustains it for a period of time). Similarly, earnout shares may be offered too, using a similar eligibility framework. Earnout shares are additional shares of stock (perhaps issued as shares of RSUs – the company will provide details if milestones are reached. This can have significant value if the SPAC is successful.
Accelerated vesting of stock options
Will the vesting of outstanding stock options automatically accelerate when the SPAC merger is complete? This is a key issue for employees with unvested equity. Refer to your stock plan documents to see if there are provisions for unvested options to vest upon change of control. If it does, ensure that the potential SPAC acquisition will meet the definition of a change in control (CIC).
Keep in mind that the terms of business combination could ultimately override your stock plan documents. Nothing is final until it’s done!
If the plan doesn’t provide for accelerated vesting, the company could always decide to offer it or amend grant agreements prior to the closing of the deal. A company may do this to retain key employees. After all, the company still needs to operate after it goes public!
Other options for equity compensation in SPAC mergers: converting equity to the new public company, cashing shares out, or perhaps even cancelling unvested options or awards without payment. Vested shares can’t be cancelled without consideration unless underwater.
Special tax planning considerations
With stock compensation, there are always tax issues to consider.
The acceleration of vesting can trigger other issues, unrelated to the SPAC. Incentive stock options (ISO) lose their favorable tax status if more than $100,000 in ISOs are eligible for exercise in a year. This is based on the value at grant.
When unexercised ISOs are cashed out, it’s considered a cancellation of stock options for tax purposes, not a disqualifying sale. This is important, as cancelling and paying out ISOs may trigger payroll tax in addition to regular cash compensation. Exercising shortly before the deal closes can prevent this from happening. However, if the deal fails, you may trigger the alternative minimum tax if you hold the stock past the end of the year.
Especially for employees with restricted stock units (RSUs), accelerated vesting can create issues with 409A. RSUs can become subject to Section 409A if they are not settled shortly after vesting. It’s possible for other types of stock options to trigger 409A. Another issue is Section 280G: an excess 20% excise tax on ‘golden parachute’ amounts, so it’s important to work with your team of tax, legal, and financial advisors.
Equity Compensation Advisors
Stock option planning after a SPAC merger
Planning to maximize the value of your stock options after your employer goes public via SPAC merger is essential. Much like a typical IPO process, employees will have to make several important decisions after a SPACquisition.
Understand what will happen to your shares
As explained above, step one is to understand your stock option plan and what the company plans to do with unvested stock options. Executives may have more leverage early on to negotiate over employees. But at some point when the merger is looming, it may be too late to try and change the terms. This is especially important if you plan to leave the company before it goes public.
The terms of the deal will also impact your shares and tax implications (e.g. if you are fully cashed out). There’s not usually much you can do to control the situation, but you’ll want to set expectations for yourself. It’s also important not to pre-spend proceeds!
It’s official once it’s official: Just because your company is the target of a SPAC merger, doesn’t mean it’s going to happen. Recall the deals must usually be complete within 24 months or funds returned to shareholders.
Financial planning after a SPAC merger
So many different things can happen when a company goes public. It’s really important to have a team of financial, tax, and sometimes legal advisors in place to assist you in making major decisions, like when to exercise and sell shares or calculate your tax bill. And you’ll want to have a strategy in place when the lockup expires and you can sell your shares.
SPAC performance has been choppy. Due to the unique structure with warrants, delay between SPAC IPO and merger agreement (de-SPACing), as well as the extended lockup period for insiders, a lot can happen. Especially if you own a lot of stock in the company relative to your other assets, you’re exposed without a plan to diversify away from company stock.
When working with investors after a sudden windfall, we’ll review their entire financial situation and goals. Most of our new clients haven’t worked with a financial advisor before, so they lack an investment strategy and coordinated asset allocation. And many investors want to know how much they might need to retire after a major stock sale. We can help with that, too.
Learn more about pre-IPO planning.
Equity Compensation and Liquidity Event Financial Advisors
If your company has announced an IPO, acquisition, SPAC, or tender offer, some of the most important financial decisions of your life are happening right now — most of them are time-sensitive and many are irreversible. This is exactly what we do.
From pre-liquidity event financial planning to wealth management for your life after, we’re here to help you through the entire sudden wealth lifecycle.
[Last reviewed March 2026]
