SPAC Returns

Should investors consider adding Special Purpose Acquisition Company (SPAC) Initial Public Offerings (IPO), which boomed in 2020, to their portfolios? In the March 2021 revision of their paper entitled “SPACs”, Minmo Gahng, Jay Ritter and Donghang Zhang examine investor returns on SPACs during the two phases of their lifecycle:

1. SPAC phase– from SPAC IPO to five trading days before completion of target business merger or, if no merger within 24 months, liquidation. To measure investor returns for this phase, they assume purchases of one SPAC unit (usually a common share and warrants) at IPO prices for 114 SPACs during January 2010 through May 2018. The investor sells each component at the higher of the market price or the redemption price.
2. deSPAC phase – from the first trading day as a merged company. For this phase, there are 114 completed mergers (105 having warrants), including 97 from the above SPAC phase plus 17 additional SPACs.

Using price data for U.S. SPACs (not those traded in Over-The-Counter markets) during January 2010 through October 2020, they find that:

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