The Case for SPACs - September 2021

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Special Purpose Acquisition Companies (“SPACs”) have been around in one form or another since the 1990’s.  Despite this history, they have often been overlooked and are often poorly understood by the wider market.  Following the dramatic growth over the past 12 months, this is starting to change.  As of late, there has been a significant amount of commentary, investor interest and research focused on SPACs.  However, even with the heightened interest, many aspects of the SPAC market remain ripe for analysis. 

 

This report seeks to answer two key questions:

  • How have SPACs historically performed from their IPO to the close of an initial business combination (or liquidation if a business combination is not closed)?

  • Where does the market stand today?

The_Case_For_SPACs

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Select Key Takeaways:

  • The SPAC structure creates an opportunity for potential asymmetric returns with the ability to meaningfully hedge downside risk (see Figure 1, page 4).

  • Since 2010, SPACs have generated compelling, asymmetric returns when considered from original IPO up to the close of an initial business combination (see Table 1 on page 5 and  Figure 2 and Figure 3 on page 6).

  • Discounted price levels for recently issued SPACs continue to persist and have more recently deepened, presenting investors with a potentially compelling entry point as discounts create an opportunity to build a diversified portfolio at attractive prices (Figure 7, page 9).

  • While SPAC IPO issuance is down from recent levels the IPO market remains active and a tighter market has resulted in more favorable terms for investors (Figure 9, page 10).

  • Early research suggests SPAC transaction activity remains robust even as competition has increased (Figure 19, page 15).

  • SPACs potentially present a unique opportunity to maintain equity market exposure while managing downside risk at a time when other asset classes appear to be fully priced (page 10).

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Research

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