SPAC IPOs and Sponsor Network Centrality

Abstract

The structure of a special purpose acquisition company (SPAC) provides a special role for its sponsors. We show that while few characteristics can explain SPACs' returns, sponsors' connections and network, measured by their centrality, explain a large portion of return variation in the cross-section. A one standard deviation increase in sponsors' network centrality leads to a 3.7% higher merger and acquisition success probability and a 2.1% higher post-merger monthly abnormal return. We attribute this outperformance of firms with high network centrality to superior deal sourcing and fundraising abilities. Overall, we show that the network connections of the SPAC management teams can add value to SPACs' deals despite the general underperformance of SPACs after business combinations.

Keywords: IPO, Special Purpose Acquisition Company, Network Centrality, SPAC

JEL Classification: G24, G34, D85