No, SPACs Do Not Dilute Investors – A Theoretical and Empirical Analysis
Over the past decade, special purpose acquisition companies (“SPACs”) became a prominent method for private companies to go public through a merger transaction (“de-SPAC”) between a publicly-listed SPAC and a private company. The SPAC boom peaked in 2020 and 2021 when there were 248 and 613 SPACs representing the majority of all IPOs both years. […]
Hal S. Scott is the Emeritus Nomura Professor of International Financial Systems at Harvard Law School and John Gulliver is the Kenneth C. Griffin Executive Director of the Program on International Financial Systems. This post is based on their recent paper.
Over the past decade, special purpose acquisition companies (“SPACs”) became a prominent method for private companies to go public through a merger transaction (“de-SPAC”) between a publicly-listed SPAC and a private company.
The SPAC boom peaked in 2020 and 2021 when there were 248 and 613 SPACs representing the majority of all IPOs both years. SPAC activity then began to decline after its boom in popularity attracted increased scrutiny from the SEC and its staff, including new accounting guidance that slowed the rate of SEC SPAC approvals. Moreover, articles published in 2022 and 2023 by Stanford Law Professor Michael Klausner and co-authors asserted that SPACs result in significant dilution of the initial shareholders in a SPAC that remain invested over the lifecycle of the de-SPAC merger process. They measured this supposed dilution using a metric they refer to as “net cash per share” (“NCPS”) and find that cash dilution for SPAC investors is 43%.
