When companies go public via a merger with a SPAC, they often provide optimistic, long-term financial projections—and there’s reason to be cautious about those numbers, according to new University of Michigan research.
A new study co-authored by Professor Greg Miller reviews the projections issued by SPACs from 2004 to 2021. Miller and his co-authors—Elizabeth Blankespoor of the University of Washington, Bradley Hendricks of the University of North Carolina (both Michigan Ph.D. alumna) and current Ross doctoral student DJ Stockbridge—found reason to question such forecasts.
They found:
- Just 35% of the SPACs with observable revenue met or beat their projections.
- For longer-term forecasts, the percentage of SPACs meeting projections was even lower.
- Compared to companies that completed a traditional IPO, the SPAC projections are about three times larger on average than the actual revenue growth of the IPO firms.
- After mergers via SPAC, firms tend to reduce their use of projections and move to projecting over shorter time periods.
