69 Pages Posted: 22 Feb 2021 Last revised: 14 Dec 2021
Date Written: January 29, 2021
Special Purpose Acquisition Company (SPAC) IPO investors have earned annualized returns of 15.9%, while investors for the merged companies have earned -8.1% in the first year on common shares but 68.0% on warrants. We rationalize why certain companies go public via a SPAC merger despite their high costs. We identify the economic roles of SPAC sponsors and investors, and analyze the agency problems that certain SPAC features address. To complete mergers, sponsors frequently forfeit a significant part of their shares and warrants, often transferring them to investors as inducements. SPACs are evolving towards a more sustainable equilibrium.
Keywords: Special Purpose Acquisition Company, SPAC, IPO
JEL Classification: G30,G34,G24
Suggested Citation: Suggested Citation