Performance analysis of healthcare-focused special purpose acquisition companies

The Covid-19 pandemic has accelerated some structural changes in the healthcare industry, and several health-tech start-ups thrived by providing innovative solutions to the challenges imposed by the pandemic. To finance their growth, many of these companies went through mergers with Special Purpose Acquisition Companies (SPACs). The paper investigates the market performance of healthcare-focused US-listed SPACs. The study aims to analyze the returns that healthcare SPACs offer to their investors and ascertain the determinants that drive these returns over a sample of 33 SPACs that merged with a healthcare firm between 2018 and 2021. Linear regression is employed to identify the drivers of SPACs’ market performance. Portfolio analysis is also performed and compared against the Russell 2000 and the S&P500 Healthcare Indexes.The first outcome accomplished by the analysis is that a portfolio made of healthcare-SPACs underperforms small-cap firms by 2.14% and the healthcare industry by 6.72% over a two-year period, even if the difference in the returns of the healthcare SPACs portfolio and the two benchmarks is not statistically significant. Moreover, a high level of redemptions, the presence of serial SPAC sponsors, cross-border deals, private equity and venture capital funds as sellers, and a high percentage of boutique investment banks among the sell-side advisors seem to negatively affect the returns of healthcare-focused SPACs with a significance level of at least 10%. Instead, a larger number of buy-side advisors appears to be beneficial for healthcare-focused SPACs’ market performance.

The Information Conveyed in a SPAC′s Offering

The popularity of SPACs (Special Purpose Acquisition Companies) has grown dramatically in recent years as a substitute for the traditional IPO (Initial Public Offer). We modeled the average annual return for SPAC investors and found that this financial tool produced an annual return of 17.3%. We then constructed an information model that examined a SPAC′s excess returns during the 60 days after a potential merger or acquisition had been announced. We found that the announcement had a major impact on the SPAC’s share price over the 60 days, delivering on average 0.69% daily excess returns over the IPO portfolio and 31.6% cumulative excess returns for the entire period. Relative to IPOs, the cumulative excess returns of SPACs rose dramatically in the next few days after the potential merger or acquisition announcement until the 26th day. They then declined but rose again until the 48th day after the announcement. Finally, the SPAC’s structure reduced the investors’ risk. Thus, if investors buy a SPAC stock immediately after a potential merger or acquisition has been announced and hold it for 48 days, they can reap substantial short-term returns.

Do Chinese-focused U.S. listed SPACs perform better than others do?

The extraordinary growth of China from the early 2000s until now made it one of the biggest economies in the world. Over the years, more and more Chinese companies merged with the U.S. listed special purpose acquisition companies (“SPACs”) to become public and attract foreign capital. This paper examines the differences between this specific subsample of SPACs focused on completing a merger with a business located in China among those listed on the U.S. Stock Exchanges and the other U.S. listed SPACs. The intent is to verify whether the sample differs from the rest of the market in their main characteristics, have better, equal, or worse prospects of completing a merger, and offer better, equal, or worse returns to investors. 329 SPACs were identified, of which 41 targeting Chinese businesses. Logistic regression is performed to understand whether the China market focus influences the chances of consuming a business combination. Moreover, two different models (event study approach and buy-and-hold approach) are implemented to assess the share performances of the two subsamples. The conclusions that stem from the obtained results are that China-focused SPACs differ consistently from the rest of the market in certain features but need similar time to identify a target and close the deal. Focusing on China seems to be beneficial for the SPAC’s prospects of closing a deal, being statistically significant at a 10% level. Last, a portfolio composed of the sample SPACs’ shares overperforms the non-China one in both the short and long terms. Acknowledgment The authors would like to thank their brilliant student, Mr. Daniele Notarnicola, for the precious support given during the review of the paper.

Special purpose acquisition companies as a vehicle for providing venture capital to small and medium size enterprise

Orientation: The South African economy is currently at one of its lowest points in several decades, with low economic growth, coronavirus challenges and unemployment being at an all-time high. This is further aggravated by the many challenges the economy faces, such as the lack of public sector programs to stimulate sustainable growth and a private sector mind-set that lacks business confidence and investment.Motivation of study: A SPAC is an innovative financial structure that aims to raise funds in capital markets with the purpose of acquiring an unknown exiting company, using the funds as finance, within a limited time period. Special purpose SPACs focusing on SMEs with additional criteria and incentives might prove to be a valuable vehicle that provides funding to stimulate economic growth, kick start the second economy and erode unemployment in South Africa.Research purpose: The objective of this article was to provide an overview of a special purpose acquisition company (SPAC) as a vehicle to fund future business operations and, further, to explore the opportunities that it may provide to the South African economy to stimulate growth in the second economy and small and medium-sized enterprise (SME) sector.Research approach/ design and method: This article follows a qualitative research design with an exploratory approach.Findings and contribution: Research on SPACs internationally and in South Africa is scarce and this article makes a significant contribution to the existing body of knowledge. The findings indicate that the financial measures show underperformance of SPACs relative to some traditional financial measures.Practical implications: Non-financial considerations are important in considering the value that SPACs can bring to the ailing South African economy. Special purpose acquisition companies also provide opportunities to those informal sectors, which would never be able to get access to funding and formal markets in other ways.