A Sober Look at SPACs

96 Pages Posted: 16 Nov 2020 Last revised: 25 Jan 2022

See all articles by Michael Klausner

Michael Klausner

Stanford Law School; European Corporate Governance Institute (ECGI)

Michael Ohlrogge

New York University School of Law

Emily Ruan

affiliation not provided to SSRN

Date Written: December 20, 2021


Special Purpose Acquisition Companies (SPACs)—touted as a better alternative to an IPO for taking a company public—have become the next big thing in the securities markets. This Article analyzes the structure of SPACs and the costs embedded in that structure. We find that costs embedded in the SPAC structure are subtle, opaque, higher than has been previously recognized, and higher than the cost of an IPO. Although SPACs raise $10.00 per share from investors in their IPOs, by the time a SPAC merges with a private company to take it public, the SPAC holds far less in net cash per share to contribute to the combined company. For SPACs that merged during our primary sample period of January 2019 through June 2020, mean and median net cash per share were $4.10 and $5.70, respectively. Between June 2020 and November 2021, net cash per share was somewhat higher but far below $10. We find that SPAC costs are not born by the companies they take public, but instead by the SPAC shareholders who hold shares at the time SPACs merge. These investors experience steep post-merger losses, while SPAC sponsors profit handsomely. This Article concludes by suggesting that the SEC promulgate disclosure requirements specific to SPAC mergers that make clear SPACs' costs and sponsors’ incentives, and that equalize regulatory preferences that SPACs enjoy compared to IPOs.

Keywords: SPAC, Securities Law

JEL Classification: G00, G30, G34, K2, K22

Suggested Citation

Klausner, Michael D. and Ohlrogge, Michael and Ruan, Emily, A Sober Look at SPACs (December 20, 2021). Yale Journal on Regulation, 2022, Volume 39, Issue 1., Stanford Law and Economics Olin Working Paper No. 559, NYU Law and Economics Research Paper No. 20-48, European Corporate Governance Institute – Finance Working Paper No. 746/2021, Available at SSRN: https://ssrn.com/abstract=3720919 or http://dx.doi.org/10.2139/ssrn.3720919

Michael D. Klausner

Stanford Law School ( email )

559 Nathan Abbott Way
Stanford, CA 94305-8610
United States
650-723-6433 (Phone)
650-725-0253 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
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1000 Brussels

Michael Ohlrogge (Contact Author)

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

HOME PAGE: http://rb.gy/f6iw1l

Emily Ruan

affiliation not provided to SSRN

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