We chose to do our thesis on the topic of SPACs, more specifically on the transparency and governance of SPACs, including questions related to the responsibility of sponsors and leaders of such .
We do not have a definitive thesis question yet (so feel free to tweak it) but the main idea/problem goes as followed :
“Within the framework of a Special Purpose Acquisition Company (SPAC),
what specific aspects of governance have the potential to give rise to
apprehensions regarding the acquisition of a company that may be
overvalued?”
Important:
We need this thesis in a week, so we have time to go through it and personalize it further before submitting it. Please provide it in Word document format in 1.5 line spacing. Because we already provided 20 pages of writting (litterature review), we need an additionnal 40 pages in 1.5 line spacing, thus the reason why we opened a contract for 60 pages in double line spacing.
Guidlines Summary:
The thesis properly begins with the first page of the first chapter section. Each chapter or section should represent an important division of the thesis. Each chapter should have a title identifying the subject contained therein. Typically, a thesis contains the following chapters:
• Introduction
• Literature Review (already done but needs serious improvement)
• Methodology
• Results
• Discussion and Implications
The final master’s thesis should be a minimum of 60 pages in length, excluding appendices. Note that the document should contain a reasonable amount of text and not be a mass of tables, graphs and figures. The Master Thesis should be formatted in Times New Roman 12 (or equivalent) with 1.5 line spacing and 2.5cm margins. Text should be justified. In text-references and the bibliography should use an internationally recognized system of referencing. The project includes the following materials and sections, in the sequence indicated (see details in appendix 1):
• Title page
• Keywords and abstract (150 words) in English
• Preface and/or dedication and/or acknowledgments
• Table of contents
• Executive summary (2 or 3 pages)
• List of tables
• List of figures
• Body of text
• Reference list
• Appendix or appendices
Attached documents:
– All findings we have gathered so far. We have 10–15 sources, which are academic papers (not all of them are that good though), so you will need to provided at least 10 more.
– As indicated above, we did the literature review (almost 20 pages), but it needs improvement. The feedback from the teacher is in blue at the beginning of it. Please do so.
– The detailed guidelines.
Lastly, here are indications about the variables we think are relevant to answer our thesis question:
Dependant variable : Abnormal return during the first day of cotation post mergers
Independant variables :
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Time from the SPAC IPO to the acquisition deal announcement.
- Acquisition done at the last minute (boolean).
- Spread between the deal value and the SPAC’s trust asset:
< 80% trust asset / ~ 80% trust assset / >=100% trust asset - Presence of hedge funds in the SPAC at acquisition vote : It’s positive because experienced investors as shareholders is a sign of good governance (otherwise they would be shorting/avoiding it).
- Presence of Private Equity funds in the target. (same positive impact as hedge funds)
- SPAC size : Easier to have bad governance practices if it a small entity (as it is not under spotlight).
- Underwriters reputation.
- Escrow account % : the higher, the more sponsors are incentivised to propose a good deal because the harder it will to convinced the company’s shareholders to approve the vote.
- % owned by sponsors at IPO : measures the financial engagement of sponsors in the project.
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Due Diligence and Target Selection: SPACs have a limited timeframe, often around two years, to identify and acquire a suitable target company. This time constraint might lead to rushed due diligence and a lack of thorough evaluation of the target’s financials, operations, and market potential. If the SPAC’s management team fails to conduct comprehensive due diligence, there’s a risk of acquiring a company with an inflated valuation.
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Conflicts of Interest: The sponsors and management of a SPAC are usually entitled to certain compensation, which could include a significant portion of the equity in the acquired company. This might create a conflict of interest where the management is incentivized to complete an acquisition, even if the target company is overvalued. Such conflicts can compromise the decision-making process and lead to deals that may not be in the best interest of SPAC investors.
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Valuation Challenges: Valuing private companies accurately can be complex, and there’s a risk that a SPAC might overvalue a target due to limited access to information, overly optimistic assumptions, or lack of experience in evaluating certain industries. This can result in the SPAC acquiring a company at a price that doesn’t reflect its true market value.
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Disclosure and Transparency: The level of transparency regarding the target company’s financials and operations might not be as comprehensive as in a traditional IPO process. This lack of information can make it difficult for investors to assess the target’s valuation and potential risks accurately.
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Lack of Operating History: Many target companies of SPACs are relatively young and might not have a long track record of financial performance. This lack of operating history can make it challenging to evaluate their growth prospects and assess whether their valuation is justified.
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Market Hype and Speculation: SPACs have gained significant attention and popularity in recent years, leading to market enthusiasm and speculation. This hype can drive up demand for SPAC shares, creating pressure to complete an acquisition regardless of the target’s actual value.
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Post-Acquisition Performance: If a SPAC acquires a company that is overvalued, it might struggle to meet the growth expectations set by the market. This could lead to post-acquisition challenges and potentially result in a decline in share value for the SPAC investors.