Are SPACs all they're cracked up to be?

Analysis of performance hints at limited window of time when blank-check firms see best share-price performance

Are SPACs all they're cracked up to be?

Over the past year, special-purpose acquisition companies (SPACs) have taken the stock markets by storm. As companies seeking to go public increasingly favour the vehicles over the traditional IPO process, investors in North America are focusing on the frenzy in SPACs in hopes that one holds the key to eye-watering portfolio returns.

Still, the question remains: should investors really be that excited over SPACs? Or to put it another way, do SPACs genuinely perform better than the broader markets?

To find out, YCharts examined a sample of SPACs that went through the full ideal life cycle of a blank-check firm, which includes launching on the public stock market, announcing a merger with an operating company, and successfully consummating the deal.

Among 72 SPACs that IPO’ed in 2012 or later and have since merged with a company to take it public, the firm found that the average going-public process – from announcing the merger to completing it – takes 4.1 months. That’s compared to traditional IPOs, where the process is widely believed to take at least six months.

Focusing on performance, the research found SPACs perform best during the period after they announced a definitive merger agreement, but before the merger actually closes. During that stage, 70% of the SPACs YCharts studied gained value, with 46% outperforming the S&P 500. During the earlier phase – from a SPAC’s IPO until it unveils a merger agreement announcement – just 15% outdid the S&P 500.

But after the honeymoon period bookended by a merger announcement and its coming to fruition, performance appeared to drop off. In YCharts’ research, 52% of companies saw a decline in share prices from the date they announced the closing of their mergers up to the present.

“This could be due in part to the deal’s ‘hype’ wearing off, but SPAC mechanics also introduce dilution from IPO investors and PIPE (private investment in public equity) financing that can impact share price performance,” the company said.

The decline in performance post-merger, however, does not necessarily mean SPAC-born companies are worse off than their traditional IPO counterparts. According to YCharts, around one third of the SPAC-born companies it studied have outdone the market over the period from when their merger was finalized until February 2021.


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