The Rise of SPACs: IPO Disruptors or Blank Check Distortions?
SPACs have surged as an alternative to traditional banker-led IPOs by raising capital first and then seeking acquisition targets, but their structure heavily favors sponsors through dilutive ownership stakes and high fees while creating poor post-merger returns for public shareholders. The author analyzes who benefits from SPACs (primarily sponsors), who loses (public shareholders in merged companies), and proposes structural reforms including reduced sponsor subsidies, aligned incentives, fair disclosure rules, and lower underwriting costs.
Metrics in this report
$10dollars per share
Standard SPAC offering price at IPO
85-90%percent
Percentage of SPAC investors that are large institutions per Stanford/NYU research
$6.67dollars per share
median
Median SPAC holding value when seeking acquisition target, per Stanford/NYU law school research
50%percent
Percentage of all IPO deals by dollar value in 2020
9.3%percent
average
Annual returns to SPAC investors from IPO to merger announcement, 110 SPACs 2010-2018
0.51%percent
minimum
Worst-case return for SPAC investors from IPO to merger, even in worst-performing deals
5-6%percent
SPAC merger transaction costs as percentage of deal value
20%percent
Typical SPAC promote to sponsor from minimal capital contribution
18-24months
Standard time period to complete acquisition or return cash to investors