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May 28, 2019
Welcome to the SPAC Research weekly newsletter.

Acquisitions Within Focus
Every time we start to write something about post-combination stock price performance for SPACs, we bristle at having to use the $10 cash in trust benchmark as a comparison. Many SPACs close deals with high redemption counts, and $10 doesn't represent the actual price paid at closing by any party. It would be much better to measure against a custom reference price for each SPAC that represents the purchase price of equity at closing, whether through the trust account, PIPE, or other financing tools.

We are working on that set of reference prices. In the meantime, all we can do is to present raw data for stock prices, which begs to be compared against $10. Remember, the averages below include a significant number of SPACs that closed deals with little or no public participation, often with low priced PIPEs via the 'sponsor escape hatch' route. Those deals skew the raw average prices downward, although the averages still measure where target companies are trading now, and what kind of return sponsors have seen on their at-risk investment under various circumstances.

The chart below sorts closed deals since 2016 into three buckets: 1) SPACs that closed a deal outside their intended focus area, 2) SPACs that closed a deal inside their intended focus area and 3) SPACs with a broad or general focus from the outset.

It's not that surprising to see that average performance has been better for SPACs that stayed within focus. After all, many of the best outcomes happen in an area where sponsors can lend their own credibility or operational expertise to an enterprise.

We were surprised to see how successful generalists have been in the aggregate. The sample size is small though, and the positive results here include a number of strong performances from Alec Gores and other successful serial generalist sponsors.

It's nice to see how many SPACs have stayed within their focus zone. While it's always a concern that a SPAC will stray from its original intent as the clock starts to run out, it's promising that 30 of 41 deals with a sector-specific focus stayed true to that area even as many SPACs exceeded their original liquidation deadline.

Next we took a look at performance by sector for SPACs that closed a deal within their intended sector focus.
Six in-focus consumer acquisitions since 2016 are trading at an average price of $12.75, enough for a lead even without Simply Good Foods (NASDAQ: SMPL), the category leader that closed the week above $22. Is it any wonder that SPACs with a consumer focus have led capital raised this year?

Plenty of TMT and Financial SPACs have also done well, with post-combination standouts like Clarivate (NYSE: CCC), Intermex (NASDAQ: IMXI), Verra Mobility (NASDAQ: VRRM) and CardConnect (acquired for $15/sh by FirstData in 2017). Meanwhile, targets in the Industrial and Energy sectors have languished. Energy assets are notoriously volatile and sensitive to commodity prices, and a number of Industrial acquisitions have struggled with execution the past few years.

In-focus targets that don't fit into one of the named buckets have traded poorly. Niche SPACs have generally raised smaller pools of capital at IPO and end up targeting smaller acquisitions. It's worth noting that these have also been the targets most likely to close with a low priced PIPE or with no minimum cash condition.

This leads back to a broader theme of the de-SPACing process: it's easier for sponsors to find a home for shares on the buy side if the acquisition target is a) within a category that gets people excited, and b) above a certain size. It's hard enough for sponsors to get potential investors to even do diligence on a target when closing isn't guaranteed. Larger targets definitely tend to generate more investor interest.

There's an obvious lesson here for SPAC sponsors: pick a sector that carries broad investor appeal and stay in your lane!

IPOs and S-1's
  • GX Acquisition Corp. (GXGX) raised $250mm on Monday 5/20/2019. GX is led by Jay Bloom and Dean Kehler, two of the three co-founders of Trimaran Capital Partners. Cantor Fitzgerald was sole book-runner.
  • Haymaker Acquisition Corp. II (HYAC) filed to raise $300mm for a consumer related acquisition. Haymaker's first SPAC recently closed its acquisition of OneSpaWorld (NASDAQ: OSW), which is currently trading around $13. Haymaker's leadership includes Steven Heyer, former executive at Starwood, Coca-Cola & Turner Broadcasting, and Andrew Heyer, the third co-founder of Trimaran with Jay Bloom and Dean Kehler.
  • Fellazo Inc. (FLLC) filed to raise $50mm for an acquisition in the health food and supplement sector in Asia. We've seen an awful lot of Asia focused SPACs that raise less than $100mm, have units that include a right and a half-share warrant, and grant the sponsor two or three optional $0.10 3-month extensions. Rights can be a challenging overhang for sponsors to deal with, and Fellazo looks to be the first sub-$100mm SPAC in recent memory to do away with them, while also cutting the contribution amount for each of their three 3-month optional extensions from $0.10 to $0.075. We'll be watching closely after last week's examination of extension amounts.
  • Proficient Alpha Acquisition Corp. (PAAC), a SPAC focused on financial services in Asia, looks set to price a $100mm IPO this week.
Deal Announcement
  • Pivotal Acquisition Corp. (PVT) announced an agreement to acquire KLDiscovery, an electronic discovery and data recovery services provider, at an $800mm enterprise value. The transaction includes 34.8mm of all-stock consideration (plus a 2.2mm share earn-out), and carries a $175mm minimum cash condition. Pivotal announced an up-to $150mm forward purchase contract at IPO of which up to $50mm may end up being invested alongside the business combination.

Broken Deal
  • Pensare Acquisition Corp. (WRLS) and TPx Communications mutually terminated their business combination agreement. Pensare stated that it intends to continue to pursue a business combination. It has until 5/31/2019 to determine if it will continue contributing $0.033 per month, per public share into its trust account, or offer a redemption opportunity. Its charter currently runs through 8/1/2019 if not further extended.

Upcoming Extensions
  • Modern Media Acquisition Corp. (MMDM) set a meeting date of 6/12/2019 to extend its charter from 6/17/2019 through 8/17/2019. It anticipates satisfying all closing conditions for its business combination with music streaming platform Akazoo by 7/15/2019. The deal carries a $60mm minimum cash condition, with a 7.46mm maximum public redemption scenario (51% of public shares) at the approval meeting. MMDM's sponsor does not intend to contribute to the trust account for this additional extension.
  • KBL Merger Corp. IV (KBLM) decreased the monthly per-share extension contribution from $0.025 to $0.0225 in connection with the meeting it intends to hold on 6/5/2019. If the extension is approved, KBLM will have until 9/9/2019 (or 12/9/2019 if it signs a definitive agreement for a business combination). KBLM has signed a non-binding term sheet to acquire CannBioRex, a developer of synthetic pharmaceutical grade cannabinoid treatments. The term sheet looks to be all stock with $175mm of share consideration (at ~$10) and a $40mm minimum cash condition.
  • TPG Pace Holdings Corp. (TPGH) announced that it has entered into a non-binding LOI for a business combination, activating a 3-month charter extension through 9/30/2019. We saw a number of these provisions from 2015-2017, allowing certain SPACs an additional three months just for signing an LOI, but the market seems to have wised up to the fact that it's basically a free extra three months and it's been some time since investors have given any SPAC the right at IPO to an LOI-activated extension without any capital contribution.
Upcoming Events this Week
  • One Madison Corp. (OMAD) will hold a shareholder meeting on Tuesday 5/28/2019 to approve its business combination with Ranpak. As a reminder, OMAD's sponsor last week subjected 100% of its promote to an earn-out, and announced an additional $20mm PIPE (on top of $292mm in equity investments from anchor and PIPE investors and $650mm of committed debt financing)
Disclosures: Site administrators are long GXGXU, OMAD, OMAD/W, PVT/W, MMDMW, MMDMR, TPGH, TPGH/W, KBLMR, KBLMW & short OSW and may trade in or out of positions in these or other SPAC securities at any time. Nothing on is a solicitation to buy or sell any investment.