"We can list through an IPO or merge into a SPAC that has $230m in trust. Which one leaves our shareholders better off?" This is a live ECM and M&A interview question, and it is one of the few where a candidate who reaches for a memorised list of pros and cons will lose to a candidate who reaches for a calculator. This walkthrough shows exactly how to calculate de-SPAC dilution, net primary proceeds and the all-in cost of each route, using one consistent fact pattern you can reproduce on paper in about ten minutes.
The short answer, before the arithmetic
Compare the two routes on net cash delivered and value per share, never on percentage ownership retained. Percentage ownership is the metric candidates instinctively reach for, and it is the one that most reliably produces the wrong answer, because a route that delivers less cash can leave existing holders with a larger slice of a smaller company. If you say nothing else in the first thirty seconds, say that.
The conceptual background — what a trust is, what the promote is, why redemptions exist — is covered separately in SPAC vs. traditional IPO: structural differences and sponsor economics. This article assumes you already have that and goes straight to the numbers.
The fact pattern
A privately held industrial-technology group, NordVolt Systems, needs roughly $200m of primary capital and a listing. It has a standalone equity value of $800.0m across 80.0m shares.
| Input | Route A — IPO | Route B — De-SPAC |
|---|---|---|
| Pre-money equity value | $800.0m | $800.0m |
| Existing / rollover shares | 80.0m | 80.0m |
| Primary shares offered | 25.0m | — |
| IPO discount to fair value | 15% (0.15) | — |
| Underwriting fee / gross spread | 6.0% (0.06) | — |
| Other offering costs | $6.25m | — |
| SPAC trust / public shares | — | $230.0m / 23.0m at $10.00 |
| Sponsor founder shares (promote) | — | 5.75m |
| Redemption rate | — | 85% (0.85) |
| PIPE | — | $150.0m at $10.00 |
| Deferred underwriting fee | — | 3.5% (0.035) of trust |
| Other transaction costs | — | $16.95m |
The same numbers are set up as a guided exercise, with follow-up questions and a full model answer, in the case study SPAC vs. Traditional IPO. Attempting it before reading the steps below is the better order.
Step 1 — IPO net primary proceeds
Anchor on fair value per share first, because the IPO discount is quoted against it.
Fair Value per Share = $800.0m / 80.0m = $10.00
Offer Price = $10.00 × (1 − 0.15) = $8.50
Gross Proceeds = 25.0m × $8.50 = $212.5m
Underwriting Fee = 6.0% × $212.5m = $12.75m
Net Proceeds = $212.5m − $12.75m − $6.25m = $193.5m
Say the words "net primary proceeds" out loud. Gross proceeds are a league table statistic; net proceeds are what funds the business. The 15% discount is not an error by the syndicate — it is the concession that anchors an order book in a company with no trading record, and the same pricing logic governs IPO pricing and stabilization and the greenshoe that follows it.
Step 2 — IPO pro-forma share count and value per share
Pro-Forma Shares = 80.0m + 25.0m = 105.0m
Post-Money Equity Value = $800.0m + $193.5m = $993.5m
Value per Share = $993.5m / 105.0m = $9.46
Existing Ownership = 80.0m / 105.0m = 76.2%
Existing Holders' Value = 80.0m × $9.46 = $757.0m
Note the mechanic: value per share falls from $10.00 to $9.46 because new money came in below fair value and because fees consumed part of it. That is economic dilution, as distinct from the arithmetic share-count dilution candidates usually describe. If the distinction is not yet second nature, the treasury stock method walkthrough in Diluted Share Count and the fuller treatment in Dilution Deep Dive are the right places to build it.
Step 3 — De-SPAC cash after redemptions
This is where most candidates go wrong, because they treat the $230.0m trust as money in hand.
Trust Cash Retained = $230.0m × (1 − 0.85) = $34.5m
Deferred Underwriting Fee = 3.5% × $230.0m = $8.05m
Total Transaction Costs = $8.05m + $16.95m = $25.0m
Net Cash to Company = $34.5m + $150.0m − $25.0m = $159.5m
Three things to flag as you compute this. First, redemption is an unconditional right: every SPAC public shareholder can take back roughly $10.00 plus accrued trust interest at the vote, whatever they vote and whatever they think of the target. Second, the PIPE is doing almost all of the work here — $150.0m of the $159.5m — which is why PIPE availability, not trust size, is the real financing constraint in a de-SPAC. Third, the deferred underwriting fee is charged on the original $230.0m trust, not on the $34.5m that survives, so the fee percentage effectively multiplies as redemptions rise.
Step 4 — De-SPAC pro-forma share count and value per share
Public Shares Retained = 23.0m × (1 − 0.85) = 3.45m
| Share class | Shares (m) | % of total |
|---|---|---|
| Rollover shares (existing holders) | 80.00 | 76.8% |
| Retained SPAC public shares | 3.45 | 3.3% |
| Sponsor founder shares (promote) | 5.75 | 5.5% |
| PIPE shares | 15.00 | 14.4% |
| Pro-forma total | 104.20 | 100.0% |
Post-Money Equity Value = $800.0m + $159.5m = $959.5m
Value per Share = $959.5m / 104.2m = $9.21
Existing Ownership = 80.0m / 104.2m = 76.8%
Existing Holders' Value = 80.0m × $9.21 = $736.7m
Why the promote does not shrink with redemptions
Look carefully at the table. The sponsor's 5.75m founder shares are 5.5% of the combined company — larger than the entire surviving public SPAC float of 3.45m. The promote was fixed at 20% of the SPAC's share count before a target was ever identified, so it is completely insensitive to how much cash actually arrives. When redemptions were in the single digits, that fixed claim sat on top of a large pool of delivered capital and felt tolerable. At 85%, the same claim is carried by a fraction of the money, which is the whole story of why the SPAC market repriced.
The trap: higher ownership, worse outcome
Existing holders retain 76.8% under the de-SPAC and only 76.2% under the IPO — and are nonetheless $20.3m worse off, because the company raised $34.0m less cash. State this explicitly in an interview. It is the single observation that separates a candidate who has run the numbers from one who has read a comparison table.
Step 5 — All-in cost of each route
Now price the two routes on a like-for-like basis: every economic cost, divided by the cash actually delivered.
Money Left on the Table = 25.0m × ($10.00 − $8.50) = $37.5m
IPO All-In Cost = $12.75m + $6.25m + $37.5m = $56.5m, i.e. 29.2% of $193.5m
Promote Value = 5.75m × $9.21 = $53.0m
De-SPAC All-In Cost = $25.0m + $53.0m = $78.0m, i.e. 48.9% of $159.5m
| Metric | IPO | De-SPAC |
|---|---|---|
| Net cash delivered | $193.5m | $159.5m |
| Value per share | $9.46 | $9.21 |
| Existing ownership | 76.2% | 76.8% |
| Existing holders' value | $757.0m | $736.7m |
| All-in cost / net cash | 29.2% | 48.9% |
Money left on the table is a real cost
Candidates routinely exclude the IPO discount because no one invoices for it. That is wrong: 25.0m shares sold $1.50 below fair value transfers $37.5m of value from existing shareholders to new investors, and it dwarfs the $12.75m gross spread. Including it is not a technicality — without it, the IPO looks artificially cheap and the comparison collapses.
Valuing the promote correctly
Value the founder shares at the pro-forma share price of $9.21, not at the nominal $10.00 SPAC price. Using $10.00 would overstate the promote at $57.5m and, more importantly, would show that you had not noticed the combined company is worth less per share than the SPAC's headline price. Interviewers notice which number you pick.
Delivering the answer in ninety seconds
Structure beats speed. A clean verbal answer runs: "The IPO delivers $193.5m net against $159.5m for the de-SPAC, so on cash alone the IPO wins by $34.0m. Pro-forma share counts are similar — 105.0m versus 104.2m — so existing holders actually retain slightly more of the de-SPAC, 76.8% versus 76.2%. But that is misleading, because they own more of a company that raised less: value per share is $9.46 versus $9.21, and aggregate value to existing holders is $757.0m versus $736.7m. The driver is the sponsor promote: 5.75m fixed founder shares that do not shrink when 85% of the trust redeems. All-in cost is 29.2% of net proceeds for the IPO against 48.9% for the de-SPAC."
That is roughly ninety seconds and it demonstrates numeracy, structure and market awareness together. Rehearsing the same discipline across adjacent ECM products — a rights issue and its TERP, a block trade against an accelerated bookbuild, or a convertible bond — is what makes it feel automatic under pressure.
The follow-ups you should expect
At what redemption rate does the de-SPAC win?
Lower redemptions add trust cash and public shares at a fixed $10.00 per share. Because $10.00 sits above the pro-forma value per share, each retained share is accretive to existing holders. Solving for the point at which the de-SPAC matches $9.46 per share puts the break-even redemption rate at roughly 25–30%. That is precisely why sponsors negotiate non-redemption agreements and backstop commitments: without them, the economics of the entire transaction depend on a vote the sponsor cannot control.
What if the sponsor forfeits half the promote?
Founder shares fall to 2.875m and pro-forma shares to 101.325m. Net cash is unchanged at $159.5m, so post-money equity value stays at $959.5m and value per share rises to $9.47. Existing holders' aggregate value becomes about $757.4m, which now narrowly beats the IPO. Promote forfeiture, deferral, or conversion into performance-linked earn-out shares became standard practice in 2022 for exactly this reason: it is the cheapest lever available to make a heavily redeemed deal clear.
What about the warrants you ignored?
SPAC units bundle a share with a fraction of a warrant, typically struck at $11.50, and the sponsor holds private placement warrants alongside. They do not dilute at closing but they are a contingent claim that converts exactly when the stock recovers — that is, precisely when existing holders would otherwise be earning back the value they lost. Model them with the treasury stock method on the in-the-money tranche and disclose the total overhang separately. Note as well that warrants with non-standard settlement terms are frequently liability-classified and marked to market through the income statement, adding earnings volatility unrelated to operations.
Would you ever recommend the de-SPAC anyway?
Yes, and saying so shows judgement rather than a bias. Execution certainty is worth paying for when an IPO window may not be open; a merger structure permits forward projections that a prospectus cannot easily carry; and a credible sponsor can contribute board capability and customer access that a syndicate cannot. The honest framing is that the premium is the price of certainty, not evidence that the buyer is naive. The same optionality logic drives the choice in a dual-track process, where an IPO and a sale are run in parallel precisely to preserve the ability to choose late.
Mistakes that lose the question
- Using the trust size as cash received. The trust is a ceiling; redemptions decide the floor.
- Comparing percentage ownership across routes that deliver different amounts of capital.
- Excluding the IPO discount because it is not a fee, which understates the IPO's true cost by roughly three times the gross spread here.
- Valuing the promote at $10.00 rather than at the pro-forma share price.
- Netting the deferred underwriting fee against post-redemption cash instead of the original trust size.
- Quoting a headline valuation as if it were proceeds. Enterprise value and equity value are different again, and the bridge between them — set out in the full EV-to-equity bridge — is a separate calculation an interviewer may well pivot to.
What to practise next
Run the fact pattern above from a blank sheet until the five steps come out in order without prompting, then vary one input at a time: push redemptions to 95%, halve the PIPE, or double the promote, and watch which conclusion flips. Once that is comfortable, the natural next steps are the conceptual companion piece on how SPAC and IPO structures differ and why the SPAC market rose and fell, the sponsor-side view in SPAC interview questions on sponsor economics and conflicts of interest, and the process-level detail in calculating IPO deal size, greenshoe and free float.
The underlying skill is not memorising SPAC trivia. It is refusing to compare two financings on a single metric, and knowing which metric — net cash delivered, pro-forma share count, value per share, or all-in cost per dollar raised — actually answers the question that was asked.