A Hard Look at SPAC Projections

Management Science, 68 (6), 4742-4753.

26 Pages Posted: 14 Nov 2021 Last revised: 21 Jun 2022

See all articles by Elizabeth Blankespoor

Elizabeth Blankespoor

University of Washington - Michael G. Foster School of Business; University of Washington - Department of Accounting

Bradley E. Hendricks

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School

Gregory S. Miller

University of Michigan, Stephen M. Ross School of Business

DJ Stockbridge

University of Michigan, Stephen M. Ross School of Business

Date Written: February 1, 2022

Abstract

Firms’ use of SPACs to go public has increased dramatically, leading to market and regulatory debate about their use of projections. Examining SPAC mergers from 2004 through 2021, we find that 80% of firms provide projections for four years ahead on average, with approximately one-quarter of recent projections extending more than five years. For the sample of SPAC mergers with observable post-merger revenue, we find that only 35% of firms meet or beat their projections. This proportion declines for forecasts that are longer horizon, and non-serial SPAC sponsors miss forecasts by greater percentages. When we compare SPAC projected revenue growth to benchmark samples of IPO firms and matched firms, the SPAC projections are approximately 3 times larger on average than benchmark firms’ actual revenue growth, with even greater differences for long-term projections. After the merger, firms reduce their use of projections, providing them at statistically similar rates as benchmark firms. Overall, the evidence supports concerns that the SPAC merger includes highly optimistic projections.

Keywords: SPAC, Projections, Forecasts

JEL Classification: G34, G17, M40

Suggested Citation

Blankespoor, Elizabeth and Hendricks, Bradley E. and Miller, Gregory S. and Stockbridge, DJ, A Hard Look at SPAC Projections (February 1, 2022). Management Science, 68 (6), 4742-4753., Available at SSRN: https://ssrn.com/abstract=3961848

Elizabeth Blankespoor

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

University of Washington - Department of Accounting ( email )

224 Mackenzie Hall, Box 353200
Seattle, WA 98195-3200
United States

Bradley E. Hendricks (Contact Author)

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
(919) 962-3619 (Phone)

Gregory S. Miller

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

DJ Stockbridge

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI 48109-1234
United States

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