In Vogue Again: The Re-Rise of SPACs in the IPO market

Brooklyn Journal of Corporate, Financial & Commercial Law, 2022, vol. 16, 105-162.

Bocconi Legal Studies Research Paper No. 3820957; University of Luxembourg Law Working Paper No. 2021-005

58 Pages Posted: 14 Apr 2021 Last revised: 18 May 2022

See all articles by Maria Lucia Passador

Maria Lucia Passador

Harvard University - Harvard Law School; Bocconi University - Department of Law

Date Written: April 4, 2021

Abstract

If the capital markets described the year 2020 in a few words, it would certainly be Special Purpose Acquisition Company (SPACs), which - although to a different extent - are now gaining momentum on both shores of the pond. While, in the United States, SPACs are really enjoying a new lease on life due to the pandemic, the outlook seems positive in Europe too, although data are not comparable to those registered across the Atlantic.
This article focuses on SPACs in the United States prior to the COVID-19 pandemic (between January 2010 and December 2019), in order to understand their structural changes over the years and the grounds for their recent resurgence. First, the article aims to identify the length and profitability of such an investment phenomenon and also understand the behavior of institutional investors in this context. Second, the article analyzes the possible investment shifts in the sector of SPACs, driven by the 2020 post-COVID bubble, relying on data retrieved from different providers and players, and specifically focusing on three main concerns: the increasing litigation phenomenon, the (resulting) increase in Directors and Officers (D&O) insurance costs, and the engagement of Private Investment in Public Equities (PIPEs) as guarantors of the soundness and of the successful outcome of the transaction.
The results of this analysis may lead to several considerations and wide-ranging policy implications. But most importantly, they reasonably prompt the belief that U.S. SPACs will hold a foreground role in the near future, not plunging back into the shadows (or even worse into the darkness that they had been living in for years), especially if some disclosure tools, like the one suggested here with regard to their sponsors, are implemented. Moreover, SPACs will certainly be able to update and evolve for good, as they have shown themselves capable of doing in the past, thus, overcoming the problems and perplexities they raise.

Keywords: SPACs, blank check companies, IPO market, private equity, business combination

JEL Classification: F30, G12, G14, G15, G24, G30, G32, G34, K22

Suggested Citation

Passador, Maria Lucia, In Vogue Again: The Re-Rise of SPACs in the IPO market (April 4, 2021). Brooklyn Journal of Corporate, Financial & Commercial Law, 2022, vol. 16, 105-162., Bocconi Legal Studies Research Paper No. 3820957; University of Luxembourg Law Working Paper No. 2021-005, Available at SSRN: https://ssrn.com/abstract=3820957 or http://dx.doi.org/10.2139/ssrn.3820957

Maria Lucia Passador (Contact Author)

Harvard University - Harvard Law School ( email )

1563 Massachusetts Avenue
Cambridge, MA 02138
United States

Bocconi University - Department of Law ( email )

Via Roentgen, 1
Milan, Milan 20136
Italy

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