Special Purpose Acquisition Companies Research Articles

A Study on Post-Listing Performance of Merged Firms: Focus on Korean Special Purpose Acquisition Companies (SPAC)

A Study on Post-Listing Performance of Merged Firms: Focus on Korean Special Purpose Acquisition Companies (SPAC)

The international financial regulation of SPACs between legal standardised regulation and standardisation of market practices

Special Purpose Acquisition Companies (‘SPACs’) are a new phenomenon in financial markets, and there is scant academic literature on the topic. This paper aims to provide a thorough overview of the remarkable story of SPACs from their origin, through blank check companies, to the development of a modern conception of SPAC. A comparative study is carried out by taking into account financial regulation and the ways in which SPACs are governed in different capital markets. Specifically, the American markets are examined, as well as new models of SPACs which have recently appeared on the Bursa Malaysia, the Toronto Stock Exchange and the Korea Exchange. To this end, the final consolidating remarks will serve as a way to evaluate proposals for a new international trend for global financial markets to follow in the coming years.

Evidence of the Italian special purpose acquisition company

In 1992 David Nussbaum with the support of the law firm Graubard Miller devised the formula of the specified purpose acquisition companies (SPAC): a financial vehicle that has the flexibility and functionality typical of the blank-check companies, which could provide investors with the right protections and guarantees in order to be a reliable instrument. The first SPAC officially debuted in 2003 through the Initial Public Offering (IPO) of Millstream Acquisition Corporation which then completed the merger with Nations Health in September 2004. In 2005 the first SPAC got listed in European Market and in 2011 the first SPAC joined in the Italian market. The aim of this research is to investigate the features of the Italian SPACs System because it’s becoming a large phenomenon in Italy. This new type of investment is able to fit the needs of small-medium Italian companies, to solve crisis difficulties, to find new finance to grow, to be a good instrument for opening up venture capital and institutional investors respecting the past business history and the safeguard of corporate control. The study, then, performs an analysis on the Italian SPACs by examining their target firms, stock performance before and after the business combination and the impact of the SPACs on SME corporate governance models. These results will be compared with those of other research developed by academic literature.

Incentive Structure of Special Purpose Acquisition Companies

Special Purpose Acquisition Companies (‘SPACs’) are shell companies that are set up with the purpose of raising financing from capital markets in order to acquire and/or merge with a business. Although the idea behind SPACs is similar to private equity funds, their financing and investment methods, investor safeguards and incentive structures differ considerably. This article explains the distinctive features of SPACs and discusses the SPAC incentive structure especially with regard to management compensation schemes and value dilution problems affecting investors.

Critical Factors Determining the Success of Special Purpose Acquisition Companies (SPACS): Comparative Analysis of an Innovative Asset Class for M&A Market

Special Purpose Acquisition Companies, typically known in the marketplace as ‘SPACs’, are publicly listed companies established with the aim of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more operating businesses or assets. Some of the structural features and incentives created by the contractual design of SPACs bear a strong resemblance to that of private equity funds. Although the history of modern SPACs started in the US in early 1990s, the first recorded SPAC IPO was in 2003. Since then, a wave of new generation SPACs occupied a considerable portion of IPOs, not only in the US, but also in Australia, Brazil, Canada, Germany, Italy, Malaysia, Netherlands, New Zealand, South Africa, South Korea, and the United Kingdom. Despite the heavy criticism in the legal and financial literature, the SPAC IPO market began to pick up its pace gradually resulting in a total gross IPO proceed of $40,950 billion in the US between 2003 and as of the date of this Dissertation. SPACs have been recently experiencing a surge in popularity again. The market performance in the year 2017 continues to produce the second largest gross IPO proceeds ($6,270 billion) since 2003. As part of the need for understanding this trajectory, my research focuses on what the determinants of SPACs’ success are, what sorts of factors have propelled them to victory, which ones are associated with failure and based on these findings, if it is possible to suggest a list of metrics to describe what a model of successful SPAC would look like. My second research question tries to discover whether there are any improvement areas for Turkish SPACs in order for them to be more successful and accordingly more attractive for investment, driving primarily from the lessons learnt from the US experience.

U.S. SPACs with a focus on China

This paper examines the value implications of remedial actions taken by the Securities Exchange Commission (SEC) during 2011 that culminated in delisting a number of Chinese companies from United States public exchanges. To achieve that we examine the institutional characteristics and performance of Specified Purpose Acquisition Companies (SPACs) used as a financing tool and gateway to the U.S. capital markets by Chinese companies in period 2004–2011. Evidence shows that SPACs merging with companies from China are not inferior in corporate structure when compared with other SPACs. While their institutional characteristics are similar, the performance tests indicate that Chinese SPACs lose value around SEC decision dates, but in overall they outperform other SPACs listed in the U.S.

Perverse incentives of special purpose acquisition companies, the “poor man's private equity funds”

Special purpose acquisition companies (SPACs) are an alternative investment, structured as a one-shot private equity (PE) deal. Significant cross-sectional variation exists in SPACs' performance, which can be explained by the strong implicit incentives embedded in contracts. SPAC performance is worse for acquisitions announced near the predetermined two-year deadline, for acquisitions with deferred initial public offering underwriting fees, and for acquisitions with market value close to the required 80% threshold. Also, sponsors' involvement in the merged firm's governance improves long-term performance. This evidence has important implications given SPACs' high popularity in recent years and the new PE industry's trend toward deal-by-deal fund-raising.

Going public via special purpose acquisition companies: Frogs do not turn into princes

Special purpose acquisition companies (SPACs) are cash shells that try to buy private operating firms to which they confer a public-listing status. Private operating firms tend to use SPACs as an alternative way to get listed, particularly in years with weak IPO activity and volatile markets, such as 2008 and 2009. In these two years, approximately 31% of firms went public through a SPAC acquisition rather than through an IPO. Our results from the analysis of 127 SPAC acquisitions and 1128 IPOs during the wave of “new-generation” SPACs starting in 2003 lend support to the conjecture that particular small and levered firms with low growth opportunities tend to use this vehicle. SPAC acquisitions also may be fueled by the cash-out motives of existing shareholders. Venture capitalists and private equity investors tend to refrain from using SPAC acquisitions as an exit route. Tracking long-term abnormal returns, we find that SPAC firms are associated with severe underperformance in comparison to the market, the industry and (comparable) IPO firms.

SPACs: post-merger survival

PurposeThe purpose of this paper is to study how institutional characteristics of specified purpose acquisition companies (SPACs) are related to their post-merger survival. SPACs are unique financial firms that conduct the initial public offering (IPO) with the sole purpose of using the proceeds to acquire another private company. The paper finds that institutional characteristics of SPACs are important in determining post-merger outcomes of new company, specifically when it comes to their survival/failure, i.e., increases in pre-merger commitment by SPAC stakeholders and initial positive market performance increase post-merger survival likelihood; on the contrary, mergers with higher transaction costs and focused on foreign companies exhibit increased likelihood of failure.Design/methodology/approachUsing unique sample of companies conducting an IPO, namely, SPACs, with the sole purpose to execute an acquisition in the future date within limited time, this paper presents additional evidence on the survival and acquisition frequency of IPOs, and determinants of these choices.FindingsObserving unique set of specified purpose companies, this paper documents that SPACs’ failure rate is at the level of 58.09 percent, higher than any previously reported failure rate in the post-IPO survival literature and comparable only to failure rates found by Hensler et al. (1997) at 55.10 percent for general companies. In addition, the paper documents similar findings to Bhabra and Pettway (2003) that prospectus and market characteristics of original companies have predictive power with respect to survival.Originality/valueThis study extends the literature on post-IPO survival in following ways. First, the paper documents survival rates for unique set of companies organized with the sole purpose to acquire another company. Second, the paper presents evidence on how institutional characteristics of SPAC determine their post-merged outcomes, specifically when it comes to their failures. Finally, paper contributes to the scant literature on SPACs providing new evidence on their post-merger outcomes and performance.

Specified purpose acquisition companies in shipping

This paper examines Specified Purpose Acquisition Companies (SPACs) used as a financing tool for the shipping industry in the period 2004–2013. SPACs that focused on acquisitions in the shipping industry have statistically similar characteristics to the population of SPACs that entered U.S. financial markets. Additionally, shipping companies merge into SPACs for the benefits of acquiring a public listing and receiving the SPAC's cash. The paper constructs an original SPAC Shipping Index and compares its performance with benchmark indices. Under some conditions, managers of SPACs with a focus on shipping on average exhibit a return of $154 for every $1 invested.

SPACs with Focus on China

This study examines value implications of remedial actions of the Securities Exchange Commission during the year 2011 that culminated in delisting a number of Chinese companies from the U.S public exchanges. To achieve that we examine the institutional characteristics and performance of Specified Purpose Acquisition Companies (SPACs) used as a financing tool and gateway to the U.S. capital markets by Chinese companies in period 2004-2011. The overall evidence presented shows that SPACs merging with companies from China are not inferior corporate structure in respect to the other SPACs. While their institutional characteristics are similar, the performance tests show that these Chinese SPACs lost value around SEC decision dates but in overall they outperform other SPACs listed in the U.S. capital markets.

The fast track IPO – Success factors for taking firms public with SPACs

Special Purpose Acquisition Companies (SPACs) are shells initiated with the sole intent of acquiring a single privately held company. SPAC shareholders vote on this acquisition, and in this paper we identify the factors that affect approval probability. Surprisingly, the data indicate more experienced managers and boards do not enhance the probability of deal approval. Similarly, glamor underwriters and larger underwriter syndicates are less likely to be associated with successful SPACs. Further, we find a negative relation between the presence of active investor (hedge funds and private equity funds) shareholdings in a SPAC and approval probability.

SPACs in Shipping

This study examines how Specified Purpose Acquisition Companies (SPACs) have been used as a financing tool for the shipping industry in period 2004-2013. SPACs that focused on acquisitions in the shipping industry statistically have similar characteristics as the population of SPACs that entered U.S financial markets in the same period. Additionally, shipping companies merge into SPACs for the benefits of acquiring public listing and receiving SPAC’s cash. We construct SPAC Shipping Index and compare its performance with benchmark indices. Finally, we show that managers of SPACs with a focus on shipping on average exhibit return of $154 on $1 invested.

Institutional changes of Specified Purpose Acquisition Companies (SPACs)

This study documents the changes in the corporate design of modern Specified Purpose Acquisition Companies (SPACs) for the years 2003–2012. Do institutional characteristics of SPACs determine the success of their merger outcomes? The paper finds that SPACs significantly redesigned their structure in the period under observation. In addition, the probability of a merger for SPACs increases if they are able to announce the deal soon after the Initial Public Offering (IPO), if the deal focuses on China and when their IPO is underwritten by Early Bird Capital.

Analyzing European SPACs

This article analyzes Special Purpose Acquisition Companies (SPACs) in Europe. We document various aspects associated with European SPACs by using a unique, handcollected data sample encompassing the 19 SPACs that have been listed on European stock exchanges since 2005. The article shows that in spite of being listed on European stock exchanges, many SPACs do not have a European focus, neither in terms of investors, nor in their choice of target companies. Additionally, our results show that there is a great heterogeneity in the choice of target companies among SPACs, especially with regard to financial performance, and that SPAC investors react negatively to the choice of an underperforming target company. <b>TOPICS:</b>Private equity, developed, exchanges/markets/clearinghouses, performance measurement

Unit IPO's: A Case of Specified Purpose Acquisition Companies (SPACs)

Unit initial offerings are innovative way to finance corporate activities in capital markets and are usually conducted by companies that carry a high level of asymmetry information. The degree of information asymmetry insignificantly impacts the pricing at the IPO day in our sample. In addition to outlying the structure of Unit IPO we document behavior of underwriters in this process and shed the light on their incentives through time. We find that the most successful underwriters are relatively small investment banks by size that have a niche in this market. In addition we find that the structure of offering is changing and underwriters are using fewer warrants in designing as well as charging lower fees for their services.

On Mergers, Acquisitions and Liquidation Using Specified Purpose Acquisition Companies (SPACs)

This study documents the changes in the corporate design of modern Specified Purpose Acquisition Companies (SPACs) for the years 2003 to 2012. Do institutional characteristics of SPACs determine the success of their merger outcomes? The paper finds that SPACs significantly redesigned their structure in the period under observation. In addition, the probability of a merger for SPACs increases if they are able to announce the deal soon after the Initial Public Offering (IPO), if the deal focuses on China and when their IPO is underwritten by EarlyBirdCapital.

Institutional Changes of SPACs

We document the changes of corporate design of modern Specified Purpose Acquisition Companies (SPACs) from 2003 to 2012. We assign the impact on changes of SPACs to each of the three groups of stakeholders: founders, investors and underwriters and test whether institutional characteristics of SPACs determine the success of their merger outcomes. We document that SPACs significantly redesigned its structure in the period under observation. Additionally, the probability of the merger for SPACs is increasing if they are able to; announce the deal soon after the IPO, focus that deal on China and have their IPO underwritten by EarlyBirdCapital

A story on SPACs

PurposeThis paper aims to study characteristics of specified purpose acquisition companies (SPACs) and examine the performance of their securities over time.Design/methodology/approachPrevious findings in literature on SPACs' performance around the announcement of merger date are scarce, not uniform, and mostly address the performance of SPACs' common shares. The authors believe that more insights on merger announcements can be obtained if the perf]ormance of all three types of securities that SPACs issue during the IPO, namely units, common stocks, and warrants are analyzed simultaneously. In order to examine the behavior of these securities we form three samples with daily returns for three distinguished SPAC securities. Results are obtained for abnormal returns based on the market model from Brown and Warner.FindingsIt is found that SPACs represent a fairly unique way to raise capital. The incentives of their founders, underwriters, and investors are interdependent and successful business combinations generally result in significant returns to founders. The analysis shows that SPACs have a complex corporate structure in which the incentives of the founders, underwriters, and investors are interdependent and where successful mergers result in significant returns to the founders. It also shows that different SPAC securities do not exhibit similar reactions in response to announcements regarding their corporate status. While holders of all three securities realize positive abnormal returns on the merger announcement day, the strongest reaction is observed among the investors holding warrants, while common stock holders react very mildly.Originality/valueSPACs are recent phenomena in capital markets and very few papers in finance literature describe them. None of the existing papers evaluated performance of all three types of SPAC securities: units, common shares and warrants before this paper.

The Fast Track IPO – Success Factors for Taking Firms Public with SPACs

Special Purpose Acquisition Companies (SPACs) are shells initiated with the sole intent of acquiring a single privately held company. SPAC shareholders vote on this acquisition, and in this paper we identify the factors that affect approval probability. Surprisingly, the data indicate more experienced managers and boards do not enhance the probability of deal approval. Similarly, glamour underwriters and larger underwriter syndicates are less likely to be associated with successful SPACs. Further, we find a negative relation between the presence of active investor (hedge funds and private equity funds) shareholdings in a SPAC and approval probability.