SPAC: Too Good to Be True. Exploring the SPAC phenomenon through a comparison with IPOs

Abstract

The thesis analyses the short- and long-term performance after the merger announcement of Special Purpose Acquisition Companies (SPACs), which consummated a business combination with a target company in the U.S. between January 2003 and December 2021. Further, we compare this listing methodology with the traditional Initial Public Offering (IPO) to assess the long-term performance differences. To conduct our analyses we collect a sample of 365 SPACs and 567 IPOs. Event study methodology, computing Cumulative Abnormal Returns (CARs), is applied for short-term performance, finding positive statistical significance 𝐶𝐴𝑅𝑠 ̅̅̅̅̅̅̅ of 4.74% around the merger announcement date for the whole sample, with a larger mean (7.31%) for SPACs mergers that happened during the COVID-19 Pandemic compared to SPACs in the years before COVID-19, underlying the different reaction of the market to the recent rise of SPAC, and how the SPAC structure has been evolving since its creation in 2003. The Buy and Hold methodology is applied to compute the long-term performance of SPAC and traditional IPOs. We find Negative Buy and Hold Abnormal Returns (BHAR) for windows longer than 6-months for SPACs. We also find results supporting that SPACs underperform compared to IPO in the long-term (3-years IPO 𝐵𝐻𝐴𝑅𝑠 ̅̅̅̅̅̅̅̅̅̅ of - 2.18% vs 3- years SPAC 𝐵𝐻𝐴𝑅𝑠 ̅̅̅̅̅̅̅̅̅̅ of -50.64%). This thesis contributes to enriching the academic literature available on SPAC, extending and updating the current sample, comparing the results with those of IPOs, and incorporating a focus on SPACs issued during the COVID-19 crisis.