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November 11, 2019
Welcome to the SPAC Research weekly newsletter.

Lead Left & Trust Account Retention
How do you objectively measure underwriter performance?

That question has puzzled us for years. Bankers play varied roles for different SPACs throughout the life cycle from IPO to consummation of a business combination. The lead left underwriter is usually running the show, but sometimes sponsors take care of a lot of things on their own. Other times they engage banks besides their underwriters to help source and finance their transactions. And a lot of banker involvement includes soft factors like relationship building that are hard to quantify.

To begin our measurement, a refresher on our new favorite SPAC metric: equity sold at deal closing. We like to measure the amount of equity sold at closing because it shows the actual amount of cash that a SPAC was able to secure for a transaction. As a reminder, we count all shares sold at the closing of a transaction, whether through a PIPE, backstop agreement, forward purchase, or simply unredeemed common shares (which are considered 'sold' at the per-share amount of cash in the trust account at closing).

Last month, we took all the SPACs with closed deals since 2016 and plotted the amount of equity they sold at deal closing against the size of their IPO. Below, we took that same plot and color coded it by lead left underwriter.

The first thing that jumps out is that Deutsche Bank and Citi have dominated the market for the largest SPAC IPOs. DB & Citi represent almost every SPAC that has raised over $400mm and closed an acquisition with it. And only a handful of others have ever led deals that delivered more than $400mm to SPAC targets.

The black line on the chart represents a 1:1 ratio between equity sold at closing and trust at IPO, a relationship which we'll call the Trust Conversion Ratio. It's a nice measurement because it represents whether a SPAC was able to deliver more or less than its original trust account value to a target at closing. It's exceedingly rare for a SPAC to deliver a low redemption count without a PIPE to demonstrate committed capital. And you essentially need both of those to get above the black line.

An illustrative example: Social Capital (IPOA) closed its deal last month to acquire Virgin Galactic with $550mm remaining from its trust account and $120mm of PIPE financing, for a total of $670mm in equity sold at closing. The trust account at IPO was $690mm, for a Trust Conversion Ratio of (670/690 = 97.1%). You can see IPOA as the rightmost orange dot on the chart above.

Here's a look at the Trust Conversion Ratio by lead left underwriter since 2016:
Deutsche Bank was lead left on 13 closed (or liquidated) SPACs since 2016 that have delivered 132% of their initial trust account value at deal closing. Meanwhile, EarlyBird's 13 closings over the same period have delivered 32% of their initial trust account value.

The underwriter's role can vary during the deSPAC process, so we don't want to overstate the importance of this study. Additionally, some sponsors have raised sizable PIPE investments that they led themselves. In the measuring process, it's impossible to separate banker facilitation of a transaction from simply working with sponsors that have a higher likelihood of success.

Another challenge is that the focus period is necessarily lengthy to get a large enough sample size. While Deutsche Bank's deals have sold an aggregate $6.7bn of equity at deal closings since 2016, only $226mm of it has been this year. Meanwhile, Cantor Fitzgerald has a 141% Trust Conversion Ratio in 2019, having worked on two of the most successful deals of the year.

To finish up, let's look at one more related statistic that we'll call Trust Account Retention. It's like the Trust Conversion Ratio, but strips out alternative financing like PIPEs and FPAs. Trust Account Retention measures what fraction of public SPAC shareholders held on for shares in the new company. For the purposes of this study, liquidations count as a zero.
Deutsche Bank has led all banks with 68% Trust Account Retention on SPACs that have closed deals or liquidated since 2016. Cantor Fitzgerald's recent performance is underrepresented in these longer-term numbers as well, with the bank running at an impressive 86% Trust Account Retention in 2019.

We were hoping to publish P&L for closed deals by underwriter, too. We have the numbers, but since energy has dominated the aggregate results, they mostly just measure the extent to which a bank had exposure to energy SPACs. But for subscribers who are interested, please contact us.

One more note: the study is obviously backward looking. There are 97 SPACs with almost $23bn in trust account capital pursuing business combinations right now, and the League Tables look a lot different than they did in 2017. We'll update this study periodically as the results roll in and more banks join the club of 5+ deals completed.

News From the Past Week
IPOs and S-1's
  • LGL Systems Acquisition Corp. (DFNS) raised $150mm in an upsized IPO for an acquisition in aerospace, defense & communications. DFNS is led by Marc Gabelli, the president of the Gabelli Group and a tenured portfolio manager with significant public company board experience. DFNS re-filed last week without former co-chairman Bob LaPenta, who is also CEO of Revolution Lighting Technologies (OTC: RVLT), which is currently undergoing an SEC investigation. Jefferies is sole book-runner.
  • Juniper Industrial Holdings (JIH) raised $300mm for an acquisition in the industrial sector. Juniper is led by Roger Fradin, former CEO of Honeywell Automation and Control Solutions and current board member of GS Acquisition Holdings Corp. (GSAH). UBS is sole book-runner.
  • Merida Merger Corp. I (MCMJ) raised $120mm in an upsized IPO for an acquisition in cannabis. Merida will be led by Peter Lee, founder of Sentinel Rock Capital, a long/short equity hedge fund. Merida's Non-Executive Chairman Mitchell Baruchowitz is the founder of Merida Capital Partners, whose third fund (which raised $200mm in April) is the SPAC's sponsor. EarlyBirdCapital is sole book-runner on its third cannabis deal of the year.
  • Stable Road Acquisition Corp. (SRAC) raised $150mm for a cannabis-adjacent acquisition (that is, businesses that do not 'touch the plant'). CEO Brian Kabot leads a team with a variety of cannabis-related experience. Cantor Fitzgerald is sole book-runner.
  • PropTech Acquisition Corporation (PTAC) filed to raise $150mm for an acquisition in PropTech, which is shorthand for businesses that provide technological innovation to the real estate industry. PTAC is led by co-CEO's Thomas Hennessy and Joseph Beck, who have spent the past five years managing office, residential and retail assets for ADIA, a global institutional real estate investor. Thomas Hennessy is the son of serial SPAC sponsor Daniel Hennessy, who has three successful SPAC transactions under his belt and is CEO of Hennessy Capital Acquisition Corp. IV (HCAC). Daniel Hennessy and HCAC President Greg Ethridge will also serve as advisors to PTAC. Cantor Fitzgerald is sole book-runner.
Deal Announcement
  • Allegro Merger Corp. (ALGR) announced a deal to acquire TGI Fridays in a deal that includes cash and stock consideration valued at $30mm and the assumption of $350mm of net debt. TGIF's ownership expects to roll a majority of its stake and is eligible for up to 2mm earnout shares. The deal includes a $30mm minimum cash condition, with proceeds expected to allow TGIF to delever its balance sheet.

Deal Closing
  • DFB Healthcare Acquisitions Corp. (DFBH) closed the company's acquisition of AdaptHealth on Friday 11/8/2019. The company's Class A shares and warrants are expected to trade under the symbols "AHCO" and "AHCOW," respectively, on Monday 11/11/2019.
  • Sentinel Energy Services Inc. (STNL) cancelled the extension meeting it planned to hold and decided to liquidate its trust account at the end of last week. SPACs focused on energy have struggled of late. While two have priced IPOs this year (with another in the pipeline), no SPAC has closed an energy deal in over a year and former energy SPACs have traded down with the rest of the E&P and midstream sectors over the course of 2019.

Upcoming Approval Meetings
  • Trinity Merger Corp. (TMCX) will hold an approval meeting for its deal to acquire Broadmark on Tuesday 11/12/2019 and has an extension meeting scheduled for Friday 11/15/2019 in case the company is unable to close the deal in advance of its liquidation deadline at the end of the week.
  • TPG Pace Holdings Corp. (TPGH) will hold an approval meeting for its deal to acquire Accel Entertainment on Friday 11/15/2019.
  • TKK Symphony Acquisition Corporation (TKKS) will look to become the second closed SPAC deal of 2019 for CEO Sing Wang when its tender offer for public shares expires on Friday 11/15/2019. Wang's first deal this year was CM Seven Star's (CMSS) acquisition of Kaixin Auto Group (NASDAQ: KXIN), which closed in March and traded on Friday around $1.50 per share.
  • GigCapital, Inc. (GIG) scheduled the company's meeting to approve its acquisition of CPaaS provider Kaleyra for 11/22/2019. The company also extended its tender offer to buy all outstanding rights for $0.99 each, noting that approximately 1.8mm rights have been tendered and that right holders who have entered into agreements or LOIs for forward purchase agreements hold approximately 11.7mm rights. The company also has LOIs or definitive agreements covering the retention of approximately 4mm public shares.

Charter Extensions
  • Trident Acquisitions Corp. (TDAC) will hold a meeting 11/26/2019 to extend its charter for an additional six months from 12/1/2019 to 5/29/2020. No contribution to trust is included with the extension.
  • Pensare Acquisition Corp. (WRLS) will hold a meeting 11/26/2019 to extend its charter from 12/1/2019 to 4/1/2020. The company has approximately $3.2mm left in its trust account and is seeking a $150mm PIPE to close its deal to acquire Computex, an IT service provider. The most recent proxy for the merger indicates the company may try to exchange its outstanding warrants & rights for the same PIK debt that will be included in the PIPE financing.
  • Opes Acquisition Corp. (OPES) and the company's new management will hold a meeting Friday 11/15/2019 to extend the company's charter for an additional two months until 1/15/2020. The sponsor will contribute $0.0325 per month for each remaining public share.

  • PE Hub reported that Haymaker Acquisition Corp. II is in negotiations to acquire L Catterton portfolio company PatientPoint. Haymaker Acquisition Corp. I acquired another L Catterton company, OneSpaWorld, last year in a deal that hit the rumor mill months in advance of a definitive agreement being signed.
Disclosures: Site administrators are long DFNSU, HCACU, HCACW, ALGRR, ALGRW, STNL, STNLW, TMCX, TMCXW, TKKSR, TKKSW, GIG/R, GIG/W, WRLSR, OPESW, HYACU, HYACW and may trade in or out of positions in these or other SPAC securities at any time. Nothing on is a recommendation or solicitation to buy or sell any investment.