INSIGHT

SPAC vs traditional IPOs: The readiness reality check 

Will Tanem • September 4, 2025

Services: SPAC Readiness, IPO Readiness

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The SPAC market has experienced remarkable growth, with 2025 showing renewed momentum after traditional IPOs slowed due to market volatility. While SPACs offer an attractive alternative path to public markets, a critical issue threatens to derail many of these transactions: private companies must prepare for the demands of public ownership. 

As investment professionals and private company leaders navigate this landscape, understanding the true requirements for SPAC readiness has never been more important. 

The SPAC resurgence continues to gain steam 

After a strong start to 2025, traditional IPO activity has decelerated amid market uncertainty, creating renewed interest in SPAC transactions. This trend mirrors broader market dynamics where companies and investors seek more predictable paths to public markets. 

The appeal is understandable. SPACs are often marketed as offering: 

• Faster timelines than traditional IPOs 
• Greater pricing certainty through negotiated valuations 
• Reduced dependence on volatile market conditions 

However, the reality often differs from these promises. While SPACs may appear to offer speed advantages, the actual timeline from initial discussions to completing a business combination can be just as lengthy as a traditional IPO—especially when factoring in the preparation time needed for companies to become public-ready. The perception of SPAC transactions as a “quicker” path has evolved as market participants have gained more experience with the complexities involved. 

Furthermore, new SEC regulations have significantly reshaped the SPAC landscape by aligning disclosure obligations and legal liabilities in de-SPAC transactions with those of traditional IPOs. These rules mandate enhanced transparency around sponsor compensation, conflicts of interest, dilution, and financial projections. Notably, target companies must now co-sign registration statements, assuming direct responsibility for disclosures, and the safe harbor for forward-looking statements under the Private Securities Litigation Reform Act is no longer available to SPACs. These changes underscore the need for rigorous readiness and public company discipline well before a business combination is executed 

The hidden challenge: Private companies aren’t SPAC-ready 

The most significant obstacle to successful SPAC transactions isn’t market conditions or regulatory hurdles—it’s the fundamental unpreparedness of target companies for public market demands. Many private companies attracted to SPAC opportunities lack the infrastructure necessary to operate as public entities. 

Financial reporting and audit readiness gaps 

Private companies often struggle with several critical areas: 

PCAOB audit compliance: Many SPAC targets face significant challenges in audit preparedness—not only in transitioning from AICPA to PCAOB standards, but in some cases, starting from scratch. A notable number of private company targets have never undergone an audit under any recognized framework, which creates a steep learning curve. Audit readiness alone may present significant timeline and successful transaction risk. 

Accelerated reporting timelines: Even beyond audit readiness, private companies must contend with the compressed reporting cadence required of public entities. Quarterly and annual filings under SEC rules demand a level of speed and precision that far exceeds typical private company timelines.  

A company that previously took six months to complete its annual audit will now be expected to finalize comparable reporting in just two to three months—often while simultaneously preparing for investor presentations, SEC rigor, and ongoing operating requirements. Without mature automated systems, controls, and reporting infrastructure, meeting these deadlines becomes not only difficult, but a material risk to the transaction itself. 

Internal controls over financial reporting: The Sarbanes-Oxley Act (“SOX”) requires robust internal controls that most private companies haven’t developed. Building these systems takes time, resources, and specialized knowledge. The length of time that a SPAC has been a public company can often accelerate a target company’s requirement to be compliant with SOX 404a which requires a company to assess its internal controls over financial reporting (“ICFR”) 

The due diligence disconnect and timeline reality 

SPAC sponsors often focus their due diligence efforts on business fundamentals, market opportunities, and growth projections. While these elements are important, insufficient attention is typically paid to audit and financial reporting readiness. 

This oversight creates a dangerous gap between expectations and reality. What’s particularly problematic is the persistent myth that SPAC transactions move faster than traditional IPOs. In practice, when you factor in the time needed to properly prepare an unprepared company for public markets, SPAC timelines can stretch just as long—or longer—than traditional offerings. The “speed advantage” can dissolve when companies discover the extensive preparation required to meet public company standards.  

An exception may exist for companies already pursuing dual-track readiness—those preparing simultaneously for both a traditional IPO and a SPAC transaction—who may have already invested in the systems, governance, and audit rigor needed to meet public company expectations. 

Warning signs of unpreparedness 

Private companies considering SPAC transactions should honestly assess whether they exhibit these red flags: 

• Significant reliance on manual processes for financial close 
• Lengthy month-end close process 
• Drawn out audit processes with significant audit adjustments 
• Lack of accounting policy documentation 
• Limited public company experience at the executive level 
• Limited experience with external audits 
• Insufficient documentation of business processes and controls 

The true cost of unpreparedness 

The financial implications of proceeding with a SPAC transaction before achieving readiness extend far beyond the obvious preparation expenses. Companies face several costly scenarios: 

Transaction failure: Deals that collapse due to readiness issues waste substantial time, resources, and management attention. The opportunity costs can be severe, particularly when market conditions change during extended preparation periods. 

Post-transaction cash shortfalls: Even successful SPAC transactions often result in significant redemptions by SPAC investors, leaving the newly public company with far less operating capital than anticipated. Companies unprepared for this reality may find themselves immediately seeking additional financing. 

Ongoing compliance costs: Public companies that complete transactions without adequate preparation face continuous struggles with reporting deadlines, audit requirements, and regulatory compliance—creating ongoing operational and financial strain. 

Strategic recommendations for SPAC success 

For SPAC sponsors: Expand your due diligence focus 

Smart SPAC sponsors should enhance their evaluation process to include comprehensive assessments of target company readiness: 

• Conduct thorough reviews of financial reporting capabilities and systems 
• Evaluate the adequacy of audit readiness and auditability  
• Assess management’s understanding of public company requirements 
• Factor remediation timelines and costs into deal structures 

There should be a shift in expectations from the auditor-focused question, “how fast can you complete the audits,” to the company-focused question, “how long will it take this company to become audit ready.” A company that is truly audit ready—meaning it has the necessary documentation, processes, and responsiveness in place—can deliver a far more predictable and efficient audit timeline, reducing risk and uncertainty for all parties involved.  

For private companies: Begin preparation early 

Companies considering SPAC opportunities should start building public company infrastructure well before engaging in transaction discussions: 

Strengthen financial reporting systems: Invest in robust accounting systems capable of supporting accelerated public company reporting requirements. This includes implementing proper month-end close procedures and developing comprehensive financial reporting packages that leverage technology and automation. 

Develop internal controls: Perform a risk assessment and establish formal policies, procedures, and controls over financial reporting. Consider engaging specialists to help design and implement SOX-compliant control frameworks. 

Build your team: Add professionals and advisors with public company experience, particularly in areas like SEC reporting and technical accounting.  

Engage early with audit professionals: Begin working with auditors experienced in SPAC transactions and public company requirements. Early engagement allows for proper planning and identification of potential issues before they become deal obstacles. 

The path forward: Realistic expectations and thorough preparation 

The SPAC market will likely continue providing valuable opportunities for private companies seeking public market access. However, success requires honest assessment of readiness and commitment to comprehensive preparation—regardless of timeline promises. 

Companies that approach SPAC transactions with realistic expectations about preparation time, adequate resources, and proper professional guidance position themselves for sustainable success as public entities. The notion that SPACs offer a meaningfully faster path to public markets has proven to be more marketing than reality, particularly when proper preparation is factored into the equation. 

The most successful SPAC transactions involve target companies that view the process not as a quick path to public markets, but as a strategic transformation requiring careful planning, substantial investment, and realistic time horizons for proper preparation. 

While SPACs may offer certain structural advantages—such as the ability to potentially achieve greater pricing certainty—the fundamental requirements for public company success remain unchanged. Companies that focus on building robust public company infrastructure rather than chasing perceived speed advantages will find themselves better positioned to capitalize on SPAC opportunities and thrive as public entities. 

Ready to evaluate your SPAC readiness or need guidance on the path to public markets? BPM’s Technical Accounting & IPO Readiness practice specializes in helping companies navigate the complexities of going public, whether through traditional IPOs or SPAC transactions. Our team provides comprehensive readiness assessments and strategic guidance to position your company for sustainable success. Contact us today to begin the conversation about your public market journey.