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ANALYSIS: Post-Merger SPAC Performance Is Mixed

Feb. 12, 2021, 9:36 AM

SPACs, SPACs, SPACs. While we know that the formation and IPOs of SPACs now outpace traditional IPOs, how successful are they as going concerns? What is happening after special purpose acquisition companies, or SPACs, merge with private targets? How are these newly public de-SPACed companies performing post-completion? The short answer is that so far, the results are quite mixed—and private companies mulling going public via SPACs may want to take note.

Looking at currently publicly traded companies that went public as a result of a merger with a SPAC announced and completed since Jan. 1, 2019, and for which at least one month of post-merger performance data is available, 14 out of 24 reported a depreciation in value as of one month following the completion of the merger. It’s true that, as of Feb. 10, the same group of companies has shown some improvement, with one-third reporting a year-to-date depreciation in value. But this doesn’t mean all have shown improvement. Four of these companies reported an appreciation of value as of the one-month mark and then reported a depreciation in value year-to-date as of Feb. 10, and three reported a loss in gains between the two points in time.

Of all 117 SPAC merger deals—with an aggregate value of $99.3 billion—that were announced between Jan. 1, 2019 and Feb. 10, 2021, and for which definitive agreements have been entered into, 39 deals—with an aggregate value of $47.9 billion—have reached completion so far. The performance data we reviewed was of the de-SPACed entities associated with 24 of those 39 deals, all of which have had at least one month pass since their closing date and remain currently listed on stock exchanges. (Three companies that would have been a part of this tally were delisted, so they are not included in this analysis).

As SPAC mania continues into 2021, voices expressing concerns about the SPAC model are growing in number. One of the many questions being raised is about the ultimate performance on stock exchanges of the formerly private target companies that SPACs take public.

And it’s not just financial pundits raising red flags. The concern is also being reflected in a rising number of securities lawsuits filed by SPAC stockholders post-merger. There are arguably reasons everyone involved in the SPAC process—sponsors, pre-merger public SPAC shareholders, and pre-merger private target shareholders—have an interest in the ultimate performance of a de-SPACed company. But original pre-merger shareholders of the private target, who tend to hold the bulk of the shares in the post-merger de-SPACed entity, will bear the brunt of poor market performance.

With assistance from Nageen Qasim, Bloomberg L.P.

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