Warrants

Warrants are the sweetener that makes SPAC IPOs attractive to initial investors. Each warrant gives the holder the right to buy one share of common stock at a fixed strike price — almost universally $11.50 in modern SPACs — for a period of five years after the business combination closes (or upon cashless exercise if called for redemption by the company).

Two classes of warrants exist in most SPACs. Public warrants are distributed to IPO investors as part of units and trade freely on the exchange after unit separation. Private placement warrants are purchased by the sponsor at the time of the IPO (typically at $1.00 or $1.50 each) and fund the trust's working capital and the at-risk capital that covers the SPAC's operating expenses during its search period.

Public and private warrants have slightly different terms. Private placement warrants are generally not redeemable by the company while held by the sponsor (or its permitted transferees), and they may be exercised on a cashless basis. Public warrants can be called for redemption by the company once the stock trades above $18.00 for 20 of 30 consecutive trading days, forcing holders to exercise or accept a nominal redemption price.

Warrants represent a significant potential dilution source post-de-SPAC. If all warrants are exercised, the combined company's share count increases — often by 15–25% of the public float. For this reason, sophisticated investors model the "fully diluted" share count including warrant exercise when valuing de-SPAC targets. SpacDesk computes both basic and fully diluted share counts for every tracked SPAC.