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Goldman Sachs is back in the Spac game. According to Bloomberg, the Wall Street leader is returning to the business of blank-cheque deals three years after beating a hasty retreat from the market. The bank will reportedly be taking a de-Spac-ito approach, vetting deals on a case-by-case basis and limiting the sponsors it partners with. But this news sends a clear signal, and where Goldman leads, rivals are likely to follow.
Not long ago, major investment banks had sworn off Spacs, spooked by reputational fallout, regulatory scrutiny, and a parade of disastrous deals. Yet the much-maligned special purpose acquisition company is staging a comeback. What’s striking is not only the market’s revival but also how quickly investment banks recalibrate their reputational risk thresholds amid a growing fee pool and weaker oversight.
Spacs, or “blank-cheque” firms, raise capital via an IPO to acquire a private company and take it public, bypassing the traditional listing route. They typically have two years to complete a deal or return the funds to investors.
After collapsing post-2021, the market has shown signs of life — $11bn year-to-date, up from a paltry $2bn at this point in 2024. While far below the $172bn high of 2021, the resurgence is noteworthy.
Deals are smaller now, and confidence remains measured. Yet, with interest rates elevated, Spacs have become a handy spot for hedge funds to park cash. And with public equity markets buoyant but conventional IPOs getting a mixed reception, Spacs offer a more controlled (albeit still hugely controversial) route to market.
But going public via a Spac is just the beginning. Sponsors must then complete a merger, and, crucially, persuade Spac stockholders not to redeem their shares for cash. The redemption option remains — sometimes, but not always — a potent check on deal quality. Many Spacs still expire without a deal, leaving sponsors out of pocket to the tune of $5-10mn.
Spacs weren’t always a big-bank affair. In the early 2000s, they were the domain of niche players like EarlyBird Capital. As the market matured, mid-tier banks such as Citigroup, Credit Suisse, and Deutsche Bank were leading these deals. Eventually, even leaders like Goldman Sachs, Morgan Stanley and JPMorgan joined in.
But as Spacs proliferated in 2020-21, deal quality deteriorated. Investor losses mounted as numerous companies missed projections, restated financial statements, or filed for bankruptcy. One industry nickname summed it up: “Shell Promoters Acquiring Crap.”
Amid the wreckage, legal risks were a big concern for banks, but reputational fallout loomed larger. By mid-2022, with deal activity dried up, the biggest banks withdrew en masse. Even after the SEC clarified in 2024 that Spac underwriters wouldn’t face liability for dodgy disclosures in a merger prospectus, the stigma lingered — until now.
Goldman’s return aligns with a broader regulatory and political reset. The current US administration has embraced a more laissez-faire approach to financial market regulation. Banks such as Cantor Fitzgerald — whose former chair and CEO Howard Lutnick now serves as US Commerce Secretary — aren’t just underwriting Spacs but also sponsoring them. And Trump Media & Technology Group, the parent company of Truth Social, went public last year via a Spac merger, with the combined entity trading on Nasdaq under the ticker DJT.
Suddenly, the reputational math looks different. Banks once wary of headlines and hearings now sense the costs of re-engagement have fallen a lot.
This pattern isn’t unique to Spacs. A similar transformation has occurred in crypto. JPMorgan CEO Jamie Dimon once dismissed bitcoin as a “fraud” and a “Ponzi scheme”. Other major banks steered clear, too. Today, those same institutions underwrite public stock and convertible bond offerings for crypto firms.
For sure, the shift reeks of opportunism. After all, Spac and crypto deals offer lucrative fees at a time when investment banking is still recovering. But it’s also a reminder that reputational risk is assessed dynamically. Under strict oversight, banks tread carefully, nervous about headlines that might spark regulatory investigations or political backlash. When scrutiny eases, so do any inhibitions. In today’s climate, reputational damage feels less likely — or at least, less expensive.
There’s also safety in numbers. Once leaders like Goldman re-enter the market, the herd follows to avoid missing out. When everyone participates, any criticism becomes diffuse. Reputational risk is easier to absorb when it’s scattered across the sector.
None of this is a verdict on the merits of Spacs (or crypto). Rather, what’s so telling is how quickly Wall Street’s risk calculus adjusts to changes in politics, regulation, and peer behaviour. Investment banks are, above all, ruthlessly pragmatic.
The Spac revival illustrates how reputational exposure is priced as a variable cost. For now, the rewards outweigh the risks. If and when the pendulum swings back, today’s eager underwriters will rediscover caution — at least until the next boom.
