Special-Purpose Acquisition Companies: Same Spacs but Different Types: The Good, the Bad, the Ugly and the Others

Abstract

In the last two years the number and volume of Special Purpose Acquisition Companies (SPACs) have reached an unprecedented high: 70% of total number of US IPOs were SPACs IPOs in 2021 -mid June- raising over $142 billion from investors (72,34% of total volume of US IPOs). This recent SPAC “hype” demands a closer academic research of the SPAC’s stocks performance, as we do in this study. Specifically, this is the first study analyzing SPACs short-term stock performance for SPACs gone public after 2010 (when their structure fundamentally changed) around two important events in their life using the cumulative abnormal returns (CARs) methodology: 1) the announcement of the agreement with the target firm and 2) the completion of the reversed merger; as well as identifying and proposing a taxonomy of 4 types of SPACs, according to 3 main factors for success. The sample consists of US-listed SPACs from 2016-2021. Once we have applied our taxonomy, we do the same analysis of the short-term stock performance for both events for the different clusters which gives us more insight into which SPACs are more heavily affected by the different events.

Our contribution is threefold: First, this paper contributes to the SPAC-IPO research, expanding the investigation period to 2021. Second, we propose a taxonomy of the SPACs clustering them into four groups based on three specific characteristics: the number of days it takes the SPAC to announce the merger, the volatility of the price since the SPAC’s initial listing price until the reverse merger is completed (pump and dump effect) and the difference between today’s price and the listing price. Thirdly, an event study for both key events show us that the first event (target announcement) has a positive effect, mainly driven by the group A cluster (The Good). For the second event (completion of merger) there is a negative effect, mostly driven by the type C cluster (The Ugly).

Keywords: SPAC (Special Purpose Acquisition Company), reverse merger, IPO (Initial Public Offering), taxonomy, event study, CAR (Cumulative Abnormal Return)

JEL Classification: G12, G14, G24, G30, G32, G34