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A Hard Look at SPAC Projections

Author

Listed:
  • Elizabeth Blankespoor

    (Foster School of Business, University of Washington, Seattle, Washington 98195)

  • Bradley E. Hendricks

    (Kenan-Flagler Business School, University of North Carolina at Chapel Hill, Chapel Hill, North Carolina 27599)

  • Gregory S. Miller

    (Stephen M. Ross School of Business, University of Michigan, Ann Arbor, Michigan 48109)

  • Douglas R. Stockbridge

    (Stephen M. Ross School of Business, University of Michigan, Ann Arbor, Michigan 48109)

Abstract

Firms’ use of special purpose acquisition companies (SPACs) to go public has increased dramatically, leading to market and regulatory debate about their use of projections. Examining SPAC mergers from 2004 through 2021, we find that 80% of firms provide projections for four years ahead on average, with approximately one-quarter of recent projections extending more than five years. For the sample of SPAC mergers with observable postmerger revenue, we find that only 35% of firms meet or beat their projections. This proportion declines for forecasts that are longer horizon, and nonserial SPAC sponsors miss forecasts by greater percentages. When we compare SPAC projected revenue growth with benchmark samples of firms completing an initial public offering (IPO) and matched firms, the SPAC projections are approximately three times larger on average than benchmark firms’ actual revenue growth, with even greater differences for long-term projections. After the merger, firms reduce their use of projections, providing them at statistically similar rates as benchmark firms. Overall, the evidence supports concerns that the SPAC merger includes highly optimistic projections.

Suggested Citation

  • Elizabeth Blankespoor & Bradley E. Hendricks & Gregory S. Miller & Douglas R. Stockbridge, 2022. "A Hard Look at SPAC Projections," Management Science, INFORMS, vol. 68(6), pages 4742-4753, June.
    • Handle: RePEc:inm:ormnsc:v:68:y:2022:i:6:p:4742-4753
    DOI: 10.1287/mnsc.2022.4385
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    References listed on IDEAS

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    Keywords

    SPAC; projections; forecasts;
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