Academy of Accounting and Financial Studies Journal (Print ISSN: 1096-3685; Online ISSN: 1528-2635)


Factors Impacting the Special Purpose Acquisition Company Ipo Market in the United States

Author(s): William Cheng, Liyi Zheng, Anand Krishnamoorthy

During the coronavirus emergency, the implementation of the quarantine policy was not conducive to the operation of traditional initial public offerings (IPOs). Starting from the end of 2019, a technique called “Special Purpose Acquisition Company” (SPAC) became popular within the investment community for handling IPO transactions. This study delves into some of the specifics of the SPAC IPO transaction. Although such transactions do occur in other countries as well, the current study focuses on SPAC IPO transactions in the United States. In order to expand on the existing body of literature with respect to SPAC IPO transactions in the United States, this study has two research objectives. The first objective of this paper is to examine the factors that could potentially impact U.S. based SPAC IPO transactions. In doing so, this study focused on three factors. Those three factors are broad-based market indicators, such as the federal funds rate and the 10-year Treasury rate, policy regulations, and the Covid-19 pandemic. All three factors were equally weighted and so this study did not utilize any weighted average formulas. For the purposes of objective #1, annual SPAC IPO data from 2003-2021 was used. This constituted a total of 17 SPAC IPO transactions. The study’s second objective is to present EV/EBITDA valuation model as a viable model for evaluating SPAC IPO transactions. In this valuation model, EV stands for expected value and EBITDA stands for earnings before interest, taxes, depreciation and amortization. The study’s 2nd objective is driven by prior research studies that have indicated that the EV/EBITDA model is appropriate for valuing SPAC IPO transactions. Research results indicate that broad-based market indicators, policy regulations and the coronavirus pandemic all have an impact on the SPAC IPO market. Based on a single case study, research results also indicate that the EV/EBITDA valuation model can be used to value SPAC IPO transactions although the results are not necessarily conclusive. With respect to the study’s second objective, the researchers acknowledge the need for additional research. However, research results are generally consistent with the study’s postulated hypotheses.

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