"Walk me through how a SPAC works" is a common M&A and capital markets interview question, and it's one candidates often answer at the surface level — trust account, sponsor, merger — without ever quantifying anything. That's the gap that separates a memorized definition from an answer that actually demonstrates understanding.
Step 1: Start with the Structure, Not the Jargon
Resist the urge to open with terms like "de-SPAC" or "promote" before defining them. A strong answer opens with the mechanic: a SPAC IPOs as a cash shell, puts the proceeds into a trust account, and has a fixed window — typically 18–24 months — to find and close a merger with a private target. If it doesn't, the trust liquidates and cash goes back to public shareholders.
Step 2: Explain Who Gets What, and Quantify It
This is where most candidates stop too early. An interviewer asking about SPACs almost always wants to know whether you understand the sponsor's economics — not just that they exist. The sponsor typically receives founder shares equal to 20% of the post-IPO share count, in exchange for a relatively small amount of at-risk capital that covers underwriting fees and search costs.
If you're given numbers — say, a $300m trust and $8.5m of sponsor at-risk capital — walk through the math out loud: 20% of the combined share count converts into stock worth tens of millions of dollars at closing, which can mean a sponsor return multiple in the high single digits, purely from getting a deal done. Stating that multiple explicitly is what turns a conceptual answer into a quantified one — see the full calculation in the SPAC Transactions case walkthrough.
Step 3: Cover the De-SPAC Vote and Redemptions
Interviewers often follow up by asking what happens at the shareholder vote. The key point: shareholders can redeem their shares for a pro-rata piece of trust cash independent of how they vote on the deal itself, and they keep their warrants either way. This is why redemption rates — not just the vote outcome — determine whether a de-SPAC deal actually has enough cash to close, and why sponsors sometimes need a PIPE or forward purchase agreement to backstop the gap.
Step 4: Land on the Conflict of Interest — With a Reason, Not Just a Label
Don't just say "there's a conflict of interest" and stop. Explain the mechanism: because the sponsor loses its entire at-risk capital if no deal closes before the deadline, it's incentivized to close a deal — not necessarily the best one. Public shareholders don't share that pressure, since they can redeem for cash with no downside. That asymmetry is the actual answer an interviewer is listening for.
A Sample Answer Structure
A concise, complete answer moves through four beats: (1) what a SPAC is and how the trust account works, (2) how the sponsor's promote is structured and roughly what it's worth in dollar terms, (3) what happens at the de-SPAC vote, including redemptions, and (4) why the sponsor's incentives can diverge from public shareholders'. Candidates who can walk through all four — with at least one number attached — stand out from those who only recite the definition.
For related deal-mechanics interview questions that follow the same "structure, then quantify, then explain the incentive" pattern, see Earn-Out Structuring and Cash vs. Stock Consideration.