SPACs as an asset class
Subject
Finance
Publishing details
Working Paper
Publication Year
2009
Abstract
Special Purpose Acquisition Companies, or SPACs, grew into one of the largest segments of the U.S. IPO market prior to the financial crisis, raising more than $20 billion in gross proceeds from 2003 to 2008. SPACs bear a strong resemblance to private equity funds, yet are largely free of the selection and survivorship biases that are often present in private equity datasets. I find that a portfolio of SPACs resembling public LBOs has a market beta near unity despite an average leverage multiple of nearly two, yielding new evidence regarding the systematic risk of leveraged buyouts. I also find that SPACs’ highly predictable lifecycle yields highly predictable returns, with a monthly four-factor portfolio alpha of approximately 2% following the announcement of an acquisition and -2% after an acquisition has been completed. Finally, I provide evidence of a persistent discount in SPAC prices prior to the completion of an acquisition, which I attribute to fragmentation within SPACs’ unique shareholder base
Series
Working Paper
Available on ECCH
No
