Determinants of mergers: A case of specified purpose acquisition companies (SPACs)

This paper establishes major determinants that enable SPACs to successfully execute merger combinations. Using a sample of SPACs, companies that represent a novel invention in capital markets, in the period between August 2003 and January 2010, we test for the most important characteristics of SPACs and their influence on mergers. Obtained results could impact behavior of SPAC investors and SPAC founders. Our major finding is that the size of the SPAC at the Initial Public Offering date has a significant negative effect on the probability of the merger in the future. Additionally, the number of warrants in a unit is a variable negatively related to the probability of a merger. Alternately, if a SPAC is underwritten by the investment bank Early Bird Capital there is an increased probability that a merger will be executed. © Milan Lakićević, Miloš Vulanović, 2011.