Are SPACs a good investment deal for investors? A performance comparison between SPACs vs IPOs

Abstract

Purpose

SPACs are reshaping the world of digital entrepreneurial finance. Firms in the digital sector often need access to public markets for long-term competitiveness. SPACs offer a viable solution for these entities to collect capital and transition to public ownership quicker than IPOs. In this context, the paper aims to analyse and compare the performance of SPACs with those of IPOs in the post-business combination phase. The objective is to provide novel insights into the determinants of SPAC operating and market performance by considering firm-specific and deal-specific characteristics and the broader implications of market uncertainty.

Design/methodology/approach

The analysis applies univariate and multivariate OLS regressions to a sample of 96 SPACs to investigate the drivers affecting SPACs' performance vis-a-vis IPOs.

Findings

The study finds that SPACs underperform the matched group of IPOs on both operating and stock market performance (buy-and-hold strategy). The time to execute a business combination negatively correlates with SPAC performance, and proximity to the 80% deal threshold negatively affects share price performance and EBITDA margin.

Practical implications

The objective is to offer insights for institutional investors to effectively select prime targets within the SPAC framework.

Originality/value

This study strengthens the findings related to the drivers influencing the long-term performance of SPACs that were previously identified in prior research.