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Contribution Details

Type Master's Thesis
Scope Discipline-based scholarship
Title What are SPACs? An Empirical Analysis of the Boom for Shell Companies
Organization Unit
Authors
  • Sandro Vanoli
Supervisors
  • Kjell G. Nyborg
  • Lilia Mukhlynina
Language
  • English
Institution University of Zurich
Faculty Faculty of Business, Economics and Informatics
Number of Pages 65
Date 2022
Abstract Text Although Special Purpose Acquisition Companies (SPACs) have existed since 2003, such products did not represent a prominent alternative to traditional Initial Public Offerings (IPOs) for a long time, until a veritable boom of such listings took place during the years 2020 and 2021. This master's thesis focuses primarily on this development and tries to explain which factors have led to such an upswing and the imminent decline right after. Because, as will be shown, SPACs represent neither a more cost-effective alternative of going public, nor do they create lucrative share returns for retail investors. SPACs are often advertised as private equity (PE) opportunities for small investors. This will be fundamentally contradicted. The profitability analysis carried out shows that, whilst indeed positive and almost risk-free returns are achieved prior to the execution of a merger deal, these profits are mainly realised by institutional and private equity firms, as well as the sponsors who receive a high promote for the implementation. Limited investment opportunities for such institutions and an uncertain market sentiment linked to the COVID crisis were just some factors that influenced the development on the SPAC market. Mechanisms in the SPAC process are explained theoretically, compared with findings from various papers and finally substantiated with an own data analysis. Wave patterns, as well as deal- and company-specific cross-sectional differences are examined based on data and consistently put into comparison with conventional IPOs. After all, during the peak quarters, about half of all IPOs were attributable to SPACs and thus non-operating shell companies, which is reason enough to examine these structures more closely. Finally, the question arises of how investors can participate on the boom for SPACs and achieve positive returns. For instance, in some cases, redemption rights or the market for warrants provide arbitrage opportunities that can be exploited even by private individuals. But, the concept of SPACs needs to be understood first. Hence, this paper sheds light on this – about how they differ from other alternatives and where advantages and disadvantages of such a complex acquisition and investment form can be found.
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