SPACs: Are You Just Following the Noise?

Special-Purpose Acquisition Company (SPAC) aka “Blank Check Company”

SPACs, also known as “blank check companies,” consist of nothing other than raised capital and unpromising historical performance. These companies are solely created to acquire or merge an operating private company and to take them public within a two-year timeframe.

Investors are betting on the management to find the next “unicorn.” Therefore, how many management teams have stepped up to the plate to find these “unicorns”?

The Edge has analyzed 115 SPACs to answer this question and determine if you invest, best time to get in and which segments have outperformed their related S&P Sector Index. The study sample consists of post-business combination SPACs with completion dates from 2015 to the end of 2020. The sample includes nine different sectors and a wide range of market capitalizations. Due to the inability of a few SPACs to combine with a target business within their two-year search range, we omitted nine SPACs from the original sample of 124.

Our analysis points to staying away from SPACs due to the uncertainty and the high chance of losing money. Taking a position prior to the combination date promises the best probability of returns, but due to the lack of information, it is riskier. If a position is to be taken post-business combination, we recommend getting-in early. The top two sectors to watch are Consumer Defensive and Industrials. Conversely, the bottom two sectors to stay away from are Communication Services and Basic Materials, while the rest are to be viewed with caution.

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