Net Cash Per Share: The Key to Disclosing SPAC Dilution

Abstract

As we have shown in prior work, the SPAC structure dilutes public shareholders' equity and dissipates their cash. The result is that net cash underlying SPAC shares is far less than the $10 that SPACs purport to be worth in their merger agreements – and less than their redemption price of roughly $10. The lower the net cash per share that a SPAC delivers to a company it brings public, the worse post-merger losses tend to be for SPAC shareholders that choose not to redeem. The average share price of SPACs that merged in 2021 is now $6.30, roughly matching the actual cash per share these SPACs delivered.

In this paper, we build on our prior recommendation that the SEC require SPACs to disclose to shareholders SPACs’ pre-merger net cash per share. We specify in detail how SPACs should calculate and disclose their net cash per share, after taking into account all sources of dilution and dissipation of cash. This would bring SPACs in line with other investment products, such as mutual funds and ETFs, which are required to disclose to investors how much of their investment will be dissipated through expenses. With clearer disclosure of dilution and dissipated cash, market forces may exert pressure on SPAC sponsors to improve SPAC structures.