PE for the Public: The Rise of SPACs

A special purpose acquisition company (SPAC) allows sponsors to directly access public capital markets to raise funds to conduct acquisitions. Traditionally, such sponsors would raise capital by first tapping private markets to initiate a private equity (PE) fund. We present a unifying model of PE-to-IPO and SPAC financing. PE-to-IPO financing more efficiently separates high-quality from low-quality sponsors. SPAC financing more efficiently separates good acquisitions from bad acquisitions and is therefore preferred for funding firms subject to severe adverse selection. According to our model, the recent rise of intangible assets and technology companies can explain the increased use of SPAC financing.

Keywords: Special Purpose Acquisition Companies, Blank-Check Companies, Venture Capital, Private Equity, Entrepreneurial Finance, IPOs, Adverse Selection, Optimal Contracting.

JEL Classification: G32, G24, G34

Suggested Citation: Suggested Citation

Gryglewicz, Sebastian and Hartman-Glaser, Barney and Mayer, Simon, PE for the Public: The Rise of SPACs (February 23, 2021). Available at SSRN: https://ssrn.com/abstract=3947368 or http://dx.doi.org/10.2139/ssrn.3947368