How do SPACquisitions Perform?: Empirical Evidence on Post-Merger Performance in SPAC 3.0

Abstract: Special Purpose Acquisition Companies (“SPACs”) provide targets with an alternative route to the public markets and have grown significantly in popularity in recent years. The existing literature on SPAC performance, which predominantly examines the previous generation of SPACs (pre-2010), reveals that the market tends to react positively to acquisition announcement, while post-merger performance tends to be poor on average. Since then, much has changed: the SPAC market has boomed, and new stakeholders have begun to take an interest in SPACs. This paper aims to find out how the latest generation of SPACs are performing and whether explanations and theories for performance patterns found in previous research still hold. To find out, we apply a quantitative method that involves an event study, multiple regression, and Lasso regression. For a sample of 92 SPACs that announced and completed a merger in the U.S. between 2010-01-01 to 2021-04-08, our study was able to find empirical evidence for both the existence of positive acquisition announcement returns and for poor post-merger performance. In addition, we find that the degree of underperformance tends to increase if underwriters defer a large fraction of their total compensation, and that late mergers perform better on average. Furthermore, we find that greater SPAC sponsor and target insider involvement in the de-SPAC firm is associated with better post-merger performance. Finally, our robustness tests reveal that our findings are sensitive to the choice of benchmark, which causes us to issue a warning to other researchers to be careful with the choice of such in future SPAC performance studies.