Spacquisitions: Route to market and long-term performance

Sammanfattning: Special purpose acquisition companies (SPACs) have experienced a recent surge in interest and coverage from the finance community. At the same time, researchers state that the topic is vastly understudied compared to the attention it is generating. In this paper, we collect data on 167 SPAC acquisitions between 2003 and 2020 and compare these to 1453 IPOs performed during the same period. We find that small and highly leveraged firms with a high cost of capital are more likely to merge with a SPAC, compared to undertaking a traditional IPO process. SPACs significantly underperform the market 6, 12, 24, and 60 months after the acquisition date, and more severely so when SPAC sponsors get involved in the business execution when lacking relevant experience of the industry or geographic focus of the target firm. Additionally, we find that financial sponsors are increasingly using the SPAC route to market, and that the quality of SPAC firms appears to have improved over time. We add to previous research concerning the SPAC doorway to public markets and long-term underperformance by extending the research period and number of observations. Finally, we attempt to fill the gap on SPAC sponsor quality and how their involvement in the merged entity impact future performance.