What all-cash companies tell us about IPOs and acquisitions

We examine the IPOs of and acquisitions made by special purpose acquisition corporations (SPACs). This unique sample provides a perspective on these two corporate events unencumbered by much of the typical confounding information. We find the IPO gross spreads of these simple firms similar to the spreads accompanying the IPOs of much more complex firms. This result is consistent with illogically sticky spreads. We find acquirer announcement returns roughly triple that of typical acquisitions. Since these returns disproportionately reflect the valuation split between acquirer and target, they suggest that the lower returns of typical acquisitions stem from overestimating synergies and/or new information regarding the bidder.