The information content of SPAC securities

• Published in: International review of financial analysis 2024-05, Vol.93, p.103137, Article 103137
• Main Author: Nohel, Tom
• Format: Article
• Language: English
• Subjects: Information content; Rights; SPACs; Warrants
• ISSN: 1057-5219; 1873-8079
• DOI: 10.1016/j.irfa.2024.103137

Special Purpose Acquisition Companies (SPACs) have taken the initial public offering (IPO) market by storm. SPACs were 2/3 of all IPOs in 2021 and have continued to be a significant portion of IPOs since. A unique feature of SPACs is that the SPAC shares trade for weeks/months after a target has been announced, but before the proposed deal is consummated, giving a window into the market's sentiment towards the deal terms. Although Shareholders' redemption option reduces the informativeness of SPAC shares, SPAC rights (& warrants) provide a window into the eventual pricing of SPAC shares post de-SPAC because they aren't redeemable. We explore the informativeness of the portfolio of SPAC securities and find new insight into the pricing of these transactions. Prices of rights and warrants are far more informative about the value of a proposed business combination than share prices, and warrant prices are predictive of future redemptions. •SPAC shares clearly reflect bullish sentiment, but redemptions make a muted share price reaction difficult to interpret.•SPAC rights and warrants trade untethered from the redemption option and their prices contain relevant information•The price of SPAC rights is a far better predictor of the post de-SPAC share price than the share price itself.•While returns on SPAC warrants are strongly predictive of eventual SPAC share redemptions