Introduction
In September 2025, Kodiak Robotics, a developer of self-driving trucks, became a public company by merging with Ares Acquisition Corporation II, a special purpose acquisition company (SPAC). Legally, the SPAC acquired Kodiak: a subsidiary of the SPAC merged into Kodiak, and the SPAC renamed itself Kodiak AI. In the accounts, the reverse happened. Kodiak was treated as the acquirer, its own history continued and the SPAC was treated as a pool of cash that Kodiak had raised. The pool was smaller than planned: holders redeemed 43.9 million of the SPAC's 49.4 million public shares, leaving $26.2 million in the trust, to which private investors added $145.0 million.
The merger also dominated the year's results. Kodiak's operating loss for 2025 was $112.6 million; its net loss was $585.5 million, most of the difference coming from the instruments issued around the transaction. Both outcomes follow from the rules on who the accounting acquirer is, and what happens when the legal and accounting answers differ.
Legal Acquirer and Accounting Acquirer
Every business combination has an accounting acquirer, identified under Accounting Standards Codification (ASC) 805 by who obtains control. The legal form of the deal is only a starting point. When one company issues shares to acquire another, the issuer is usually the acquirer, but not if the target's former owners end up controlling the combined company. The factors are those covered in the acquisition method: the relative voting rights in the combined entity, the existence of a large minority voting block, the composition of the board and senior management, the terms of the exchange and the relative size of the two companies.
- Reverse acquisition
A business combination in which the entity that issues the securities, the legal acquirer, is identified as the acquiree for accounting purposes, and the entity whose equity interests are acquired, the legal acquiree, is the accounting acquirer. It typically occurs when a private operating company merges into a listed one.
When the answers differ, the combined company's financial statements are issued in the legal acquirer's name but present the accounting acquirer's history. Its prior-year figures, earnings and retained earnings carry forward. Its equity is restated to show the legal acquirer's share capital, with the historical number of shares recast using the exchange ratio, so earnings per share for earlier periods are adjusted too.
Reverse Acquisitions of Operating Companies
When the legal acquirer is itself a business, as when a private company merges into a smaller listed company with operations of its own, the acquisition method applies with the roles reversed. The accounting acquirer usually issues nothing, so the consideration is measured as the fair value of the shares it would have had to issue to give the legal acquirer's shareholders their percentage of the combined company, often based on the legal acquirer's quoted share price, as Deloitte's guide to reverse acquisitions explains. The legal acquirer's assets and liabilities are recorded at fair value, and the excess is goodwill, calculated as described in how goodwill is created and bargain purchases.
Reverse mergers of this kind are common in biotechnology, where a private drug developer merges into a listed company whose own programs have failed, gaining a listing and the listed company's remaining cash. When the listed company has little left beyond cash, it may not be a business at all, and the deal is accounted for as a capital raise instead.
SPAC Mergers as Reverse Recapitalizations
A SPAC raises money in an initial public offering (IPO), holds it in a trust account and has a limited period, often around two years, to find an operating company to merge with. Because a SPAC has no operations, it is not a business. When the target's owners control the combined company, as they almost always do, the merger is accounted for as a reverse recapitalization: the equivalent of the target issuing shares in exchange for the SPAC's net assets, mainly its cash. No goodwill or intangible assets are recorded, and the target's assets and liabilities stay at their historical carrying amounts. Kodiak's merger was accounted for this way.
- Reverse recapitalization
A merger in which a private operating company combines with a public entity that is not a business, such as a SPAC or a shell company, and the private company's owners obtain control, so the deal is accounted for as a share issue by the private company rather than as an acquisition.
Transaction costs follow the capital raise logic. Unlike the deal costs in a business combination, covered in transaction costs and financing fees, costs directly attributable to issuing the shares are deducted from the proceeds in equity rather than expensed, while the portion attributable to instruments classified as liabilities is expensed. Kodiak incurred $32.0 million of costs: $22.8 million reduced additional paid-in capital, $6.0 million reduced its new preferred stock and $3.2 million, allocated to warrants classified as liabilities, was expensed, according to its 2025 annual report.
The Instruments Around a SPAC
The cash a SPAC delivers depends on redemptions: before the merger, each public shareholder can return its shares for its share of the trust, and in many deals most do. To limit redemptions and fund the business, sponsors and targets add instruments of their own, and each has its own accounting:
- Public and private warrants issued by the SPAC, which may be equity or liabilities remeasured through earnings, as covered in warrants and equity classification.
- Shares and warrants given to holders who agree not to redeem, which are often transfers of value recorded as an expense.
- Private investment in public equity, or PIPE, sometimes in preferred stock with warrants attached.
- Earnout shares for the target's owners and the sponsor, issued only if the share price reaches set levels.
- Conversions of the target's convertible notes and simple agreements for future equity at the merger.
Kodiak's 2025 income statement shows the effect:
| Kodiak AI, 2025, $ millions | Amount |
|---|---|
| Loss from operations | (112.6) |
| Loss on issuance of equity instruments | (210.7) |
| Change in fair value of simple agreements for future equity | (190.1) |
| Change in fair value of common stock warrants | (35.0) |
| Change in fair value of second lien loans | (24.4) |
| Other items, net | (12.7) |
| Net loss before income taxes | (585.5) |
Most of the loss on issuance, $170.6 million, arose because the preferred stock and warrants sold to the PIPE investors had a fair value of $315.6 million against $145.0 million of proceeds. It also included $37.0 million of warrants and $3.2 million of shares given to investors who agreed not to redeem, which Kodiak treated as transfers of value to those holders. Those warrants and the PIPE warrants were classified as liabilities, the issue behind the restatements described in warrants and equity classification, and continued to move earnings after closing.
When the SPAC Is the Acquirer
Occasionally the SPAC's shareholders and sponsor end up controlling the combined company, for example when the SPAC buys a business from a corporate parent or private equity owner that receives mostly cash. The SPAC is then the accounting acquirer, the target is a business it has acquired and the acquisition method applies in full, with fair values, intangibles and goodwill. The successor financial statements begin at the merger date, much as in pushdown accounting, with the target's earlier results presented as those of a predecessor.
One exception has overridden the control analysis. When the target is a variable interest entity (VIE), an entity controlled through economic interests rather than votes, the company that consolidates it, here the SPAC, has always been the acquirer, even when the target's owners take control. Accounting Standards Update (ASU) 2025-03 applies the usual control factors instead when such a target is a business acquired mainly for shares, for annual periods beginning after December 15, 2026, as Deloitte's summary of the update explains.
What Bankers Watch
For a SPAC merger, the headline valuation is rarely the economic one. The cash that reaches the business depends on redemptions, and the sponsor's shares, typically about a fifth of the SPAC's shares at its IPO, the warrants and the earnout shares all dilute the holders who stay. Bankers advising on a SPAC merger build a fully diluted share count that includes the sponsor's shares, warrants under the treasury stock method, earnout shares and converted instruments, and measure the net cash per share delivered after redemptions and costs, the same discipline as in diluted earnings per share.
Afterwards, read the statements with the reverse presentation in mind: the comparative years belong to the target, not the listed entity, and the equity section is recast. In a reverse acquisition of an operating company, goodwill and intangibles appear for the legal acquirer's business; in a reverse recapitalization, none do, and the first year carries fair value charges that will not recur in the same form.
