Was the SPAC Crash Predictable?

In this Essay, we revisit our analysis in A Sober Look at SPACs and assess whether that analysis—based on the 47 SPACs that merged between January 2019 and June 2020—provided a basis on which to predict that the dilution embedded in the SPAC structure would lead to severe shareholder losses in subsequent mergers. We find that our prior analysis has been borne out in the 243 SPACs that merged in the 18 months that following the period of our original analysis. Consistent with our original analysis, after accounting for the value that sponsors, bankers, and IPO investors extracted from SPACs, there was little net cash underlying SPAC shares as SPACs entered into mergers in this recent period. In addition, the amount of net cash underlying those shares continued to be highly correlated with post-merger share value, as in our original analysis. For this analysis of more recent mergers, we take advantage of the much larger number of SPAC mergers to control for the influence of potentially confounding factors in the relationship between pre-merger net cash per share and post-merger share value. In short, we find that the SPAC crash of 2021 and 2022 was predictable