What happens during the de-SPAC transaction, and how is the target company valued and priced?

The de-SPAC transaction is the business combination where the SPAC merges with its identified target, resulting in the target becoming a publicly traded company. The valuation mechanics determine the ownership split between existing target shareholders, SPAC public shareholders, sponsors, and any PIPE investors.\n\nOwnership Calculation:\n\nGranite Ridge Acquisition Corp ($300M trust) merges with Clearwater Solar (pre-money equity value: $1.2 billion).\n\n| Party | Shares | Ownership | Value |\n|---|---|---|---|\n| Clearwater founders/investors | 120M shares | 73.2% | $1,200M |\n| SPAC public shareholders | 30M shares | 18.3% | $300M |\n| SPAC sponsor (founder shares) | 7.5M shares | 4.6% | $75M |\n| PIPE investors ($100M at $10) | 10M shares | 6.1% | $100M |\n| Total | 167.5M shares | 100% | $1,675M (pro forma EV) |\n\nNote: SPAC public shareholders own only 18.3% despite contributing $300M of $1,675M (17.9%) because the sponsor promote dilutes everyone.\n\nPIPE's Role:\nThe $100M PIPE serves three purposes:\n1. Provides certainty of cash — committed regardless of redemptions\n2. Signals institutional validation — sophisticated investors vetted the deal\n3. Bridges any gap between trust funds and the target's capital needs\n\nIf 60% of SPAC shareholders redeem, only $120M remains from the trust. The PIPE's $100M becomes critical — total cash to Clearwater: $220M (vs. $400M with no redemptions).\n\nEarnout Provisions:\nWhen the SPAC and target disagree on valuation, earnouts bridge the gap. Clearwater's founders might receive an additional 15 million shares if the stock price exceeds $15 for 20 consecutive trading days within 3 years.\n\n- At announcement: founders value the earnout at ~$0 (stock is at $10)\n- If stock reaches $15: earnout triggers, 15M additional shares issued, diluting all other shareholders by ~8.2%\n- Effect: the effective purchase price rises from $1.2B to approximately $1.35B\n\nTimeline:\n\n| Phase | Duration | Key Events |\n|---|---|---|\n| LOI signed | Day 0 | Exclusivity, initial diligence |\n| Definitive agreement | Day 45-60 | Full terms, PIPE commitment |\n| SEC S-4 filing | Day 60-75 | Registration, financial statements |\n| SEC review/comments | Day 75-120 | Respond to SEC inquiries |\n| Shareholder vote | Day 120-150 | Proxy mailing, redemption deadline |\n| Closing | Day 150-180 | Shares convert, target goes public |\n\nKey Exam Points:\n- The pro forma enterprise value equals trust cash + PIPE proceeds + target net debt\n- Redemptions reduce cash but not target valuation — ownership just shifts\n- Earnouts create contingent dilution that affects future EPS calculations\n\nMaster de-SPAC mechanics in our CFA Corporate Finance question bank.