Analyzing SPACs in space: between illusion and reality – a toolbox for investors

This thesis addresses Special Purpose Acquisition Companies (SPACs) in the space industry, which are currently booming triggered by Virgin Galactic's SPAC IPO in 2019. The objective of this research is to analyze the performance of SPAC IPOs in the capital-intensive space industry and to assess whether they constitute a good financial instrument for companies and a lucrative investment opportunity for investors within this industry. Therefore, it is examined how SPAC sponsors and merged company executives prepare the ‘investor pitch’ and what arguments they put forward to make the SPAC deal attractive to investors. Moreover, it is analyzed how attractive the SPAC target is perceived by investors. Thereafter, the added value from the perspective of the investors and the merged companies is examined. Lastly, the financial performance of the space companies is depicted in absolute and relative terms and related to the general and sector market performance. It is found that the SPAC IPO is an expensive process for space companies compared to a traditional IPO and not necessarily worthwhile. Also, the promises made by SPAC sponsors and space company managers are often illusory and have little to do with reality, envisioning amazing growth prospects for the space companies and fantastic profit forecasts for investors. To be able to assess what is illusion and what is reality in a given investment opportunity, a toolbox for investors is derived from the analysis. This toolbox is applied to each of the 14 space SPACs in the sample and substantiated with each company’s individual financial performance at specific dates in the SPAC life cycle as well as two fixed dates to provide potential investors with an informed purchase recommendation a posteriori. Considering the rather disappointing performance and the many red flags found in current space SPACs, these investment recommendations cannot be given for any of the companies, pointing to highly risky and illusory investment opportunities in the space SPAC sector.