The Regulation and Pricing of Special Purpose Acquisition Corporation IPOs
James S. Murray
Christchurch Polytechnic Institute of Technology
January 24, 2011
Special Purpose Acquisition Corporations (SPACs) are large blank check companies formed to acquire operating assets or an existing business. They provide public investors with a private equity style investment with the security of having the majority of their funds returned if an acceptable business combination is not approved within a set time limit. While originally restricted to the OTC market SPACs gained a more prominent role as AMEX began listing them in 2005, followed by the NYSE and NASDAQ in 2008. For firms with such uncertainty about their future prospects there is surprisingly little mispricing evident in their IPOs. Valuing SPACs is complicated by the warrants included in the unit offers. Examination of the stock and warrants in SPAC units suggests that investors may be simply pricing the units based on the offer price or the market price of recent issues, pricing stock at a small discount to liquidation value, and pricing warrants as the residual difference between unit and stock prices.
Number of Pages in PDF File: 27
Keywords: Initial public offer, Special purpose acquisition corporation, Exchange listing rules
JEL Classification: G3working papers series
Date posted: January 25, 2011 ; Last revised: August 14, 2011
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