Special Purpose Acquisition Companies (SPACs): The Private Sector's Solution to Government Overreach

Abstract

This research was designed to examine the growth in popularity of Special Purpose Acquisition Companies, particularly the U.S. Federal Government’s responsibility for such growth and their concerns and proposed solutions. I will attempt to answer the following questions: (1) What characteristics of SPACs or the market operating environment led to the explosion in SPAC transactions, (2) What was the U.S. Government’s role in igniting SPAC growth, (3) What concerns the U.S. Government has communicated regarding SPACs, (4) What solutions is the U.S. Government proposing to address their concerns, and finally, (5) My analysis of the aforementioned questions.

I rely on qualitative research methods to support my argument. Additionally, I incorporated quantitative data from SpacInsider.com to buttress my arguments. Future research papers will require primary research as well as multivariable regression analyses to better understand which factors are pushing SPAC growth, and which policy options have the desired impact of reducing the use of SPACs for going public and increasing the use of traditional IPOs.

My qualitative research uncovered an outsized role played by the U.S. Government in the growth and popularity of SPACs. Additionally, precedent research demonstrated that the U.S. Federal Government’s proposed solution of additional regulations will not work and will, instead, create a new alternative investment vehicle in the same fashion that overregulation of IPOs led to SPACs. To solve the concerns regulators have voiced, officials charged with developing and altering the IPO regulatory framework must loosen the grip of listing-crushing regulations. If smaller businesses were able to access the markets via an IPO, they would do so because there is more certainty in the legal grounding of an IPO, and the process is an established one familiar to the business world. Any actions, on the government’s part, to tighten already strangling regulations will lead to more of the same.