SPACs as an Asset Class
London Business School
March 24, 2009
Special Purpose Acquisition Companies, or SPACs, have grown into one of the largest segments of the U.S. IPO market, raising more than $20 billion in gross proceeds since 2003. SPACs bear a strong resemblence to private equity funds, yet are largely free of the selection and survivorship biases that are often present in private equity datasets. I find that a portfolio of SPACs resembling "public LBOs" has a market beta near unity despite an average leverage multiple of nearly two, yielding new evidence regarding the systematic risk of leveraged buyouts. I also find that SPACs' highly predictable lifecycle yields highly predictable returns, with a monthly four-factor portfolio alpha of approximately 2% following the announcement of an acquisition and -2% after an acquisition has been completed. Finally, I provide evidence of a persistent discount in SPAC prices prior to the completion of an acquistion, which I attribute to fragmentation within SPACs' unique shareholder base.
Number of Pages in PDF File: 45
Keywords: Special Purpose Acquisition Company, SPAC, Blank Check Company, BCC, Private Equity, Leveraged Buyout, LBO, Initial Public Offering, IPO, Shareholder Voting
JEL Classification: G12, G14, G34
Date posted: October 16, 2008 ; Last revised: March 25, 2009
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