Direct SPACs: The Comprehensive Guide to Understanding Acquisition Companies in

Direct SPACs refer to Special Purpose Acquisition Companies (SPACs) that offer investors the opportunity to participate in merger or acquisition deals with existing companies through an initial public offering, without the SPAC having any operational activity at its inception. Funds are raised from investors via a public offering and deposited in an escrow account until a suitable acquisition target is found within a specified period (usually between two and three years). If the acquisition or merger is successful, the target company becomes a listed company in the financial market. If no deal is reached, the funds are typically returned to investors, often with limited interest or yield. This mechanism allows investors early access to promising companies while reducing the risks of traditional IPOs, and provides startups with an alternative and fast track to market listing.

The SPAC concept originated in the United States in the 1980s but saw a massive boom between 2019 and 2021, with hundreds of companies going public via this mechanism, especially in technology and healthcare sectors. The ease of listing and speed of public offerings attracted many entrepreneurs and institutional investors. In recent years, the model has expanded to Gulf markets, with Abu Dhabi launching a dedicated SPAC market in 2023, followed by Dubai in 2025. Experiences such as the listing of KI Star Rise in Abu Dhabi demonstrated SPACs' ability to attract major deals and bring biotech startups to the market. In Saudi Arabia, there are no actual listings yet, but rapid regulatory reforms indicate the market is preparing to adopt this model soon.

Although no SPAC has been officially listed in the Saudi market as of the end of 2025, Direct SPACs are a central topic in the Capital Market Authority's plans. A draft regulation was issued in the first half of 2025 allowing special acquisition companies to go public, with a minimum capital requirement and a merger completion period not exceeding three years. This step aims to diversify financing tools, attract foreign investments, and support quality listings in promising sectors. The Tadawul financial market is also working on preparing a specialized electronic platform for listing and trading SPAC shares, ensuring transparency and investor protection. The first actual SPAC listing in Saudi Arabia is expected in 2026.

The regulatory framework for SPACs in Saudi Arabia is under continuous development, with the Capital Market Authority focusing on adapting international best practices to local market specifics. Key proposed regulatory requirements include: setting a minimum capital threshold, placing funds in escrow until acquisition, requiring shareholder approval for any merger deal, and mandating full financial disclosure and sound governance. The authority also sets safeguards for retail investors, such as a maximum acquisition period and refunding funds if no deal is completed. The main goal of these controls is to balance attracting investments and limiting the risks associated with this type of company.

The SPAC model differs from the traditional initial public offering (IPO) in several ways. In a traditional IPO, an existing company offers its shares to the public, providing a detailed financial history and precise disclosures about its operations. In Direct SPACs, a new company is established with no operational activity, and capital is raised before identifying the target company. After raising funds, the SPAC management seeks promising companies for merger or acquisition within a set period. This mechanism reduces initial disclosure requirements and facilitates faster market entry for startups or mid-sized companies, but it requires high investor trust in the SPAC management team's expertise in selecting suitable deals.

One of the main advantages of Direct SPACs is that they provide an alternative financing channel for startups and SMEs that may lack the resources or expertise required for a traditional IPO. By merging with a SPAC, these companies can quickly access liquidity and public markets without undergoing lengthy and complex offering procedures. This supports the growth of technology and innovation sectors and encourages Saudi entrepreneurs to expand their businesses. Target companies can also benefit from the SPAC management team's expertise and global investment networks to enhance their market value and achieve sustainable growth.

Despite the opportunities offered by Direct SPACs, there are several risks investors should be aware of. First, if the SPAC fails to find a suitable acquisition target within the specified period, funds may be returned without significant returns. Second, the final valuation of the target company may be inflated, impacting share performance post-merger. Third, institutional investors sometimes have superior rights or warrants that grant them additional advantages over retail investors. Lastly, the success of the investment largely depends on the management team's experience and competence in selecting and executing fair and transparent deals.

The Saudi market has seen notable activity in private deals, with over 2,360 transactions recorded in 2025 totaling nearly SAR 44 billion. While these deals differ from Direct SPACs in legal structure, both mechanisms focus on acquisition and merger as a means of company growth. The key difference is that SPACs are publicly listed, adhere to strict transparency rules, and are traded in the market, whereas private deals are usually off-market and subject to bilateral agreements between parties. The introduction of SPACs to the Saudi market could boost merger activity and enhance transparency in acquisition operations.

Direct SPACs face competition from several alternative financing tools, such as traditional IPOs, direct listings, venture capital (VC) funds, and private equity funds. Each tool has its pros and cons; traditional IPOs offer greater transparency but require complex procedures, while direct listings allow existing companies to sell directly without issuing new shares. VC funds focus on early-stage investments with greater managerial control. SPACs offer fast and flexible solutions but carry higher risks related to transparency and target selection. The entry of SPACs into the Saudi market is expected to diversify funding sources and increase market competitiveness.

The Saudi Capital Market Authority aims, through Direct SPACs, to support the growth of the technology, healthcare, and renewable energy sectors in line with Vision 2030 objectives. These sectors are characterized by rapid growth and ongoing financing needs, and global models have proven SPACs' success in attracting emerging tech or advanced healthcare companies to the market. Local technology companies, healthcare firms, and clean energy projects are expected to be among the main beneficiaries of SPAC listings in the Saudi market, especially with strong interest from sovereign wealth funds and global investors.

Direct SPACs open the door for a wider range of retail and institutional investors to participate in quality acquisition deals. When a SPAC is offered, individuals can buy shares and participate in decisions to approve deals. For financial institutions and investment funds, SPACs represent a tool to diversify investment portfolios and access early-stage growth deals. However, all investors should carefully study offering terms, understand the rights associated with shares (such as warrants or additional purchase options), and review management expertise and target sectors before making any financial decision.

Advanced market experiences have shown that Direct SPACs can achieve significant success when transparency, strong governance, and qualified management are present. In the US, some SPACs saw substantial value increases post-merger, while others faced criticism for weak disclosure or overvalued targets. In the Gulf region, Abu Dhabi's SPAC experience was positive, with the listing of KI Star Rise attracting biotech companies valued at over AED 1 billion. Saudi Arabia is leveraging these lessons to build a robust regulatory framework that balances investment attraction and investor protection.

Market experts expect 2026 to witness the first actual SPAC listing in the Saudi market, creating a new dynamic in listings and acquisitions. Key challenges include ensuring transparency, providing strong governance, and attracting outstanding management teams capable of selecting successful deals. Regulators must continue developing rules and controls in line with global market developments and offer investor education programs on the advantages and risks of SPAC investing. Conversely, the entry of Direct SPACs is expected to diversify financing tools, increase trading volumes, and stimulate the growth and expansion of startups and SMEs.