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Past Newsletters

October 19, 2020
Welcome to the SPAC Research weekly newsletter.

Minimum Cash Conditions
In a typical M&A deal, one might assume the shareholder vote to approve a transaction is the gate that will decide whether the deal gets consummated. If shareholders approve the deal, the acquirer will proceed to meet other closing conditions and ultimately deliver merger consideration to the sellers.

But in a SPAC deal, the approval vote is largely a formality. Most shareholders are also warrantholders and are incentivized to vote in favor of a deal even if they plan to redeem for cash. This means that meeting the target's minimum cash condition is usually the primary deal hurdle for SPACs.

Most deals contain an available cash condition that represents a minimum amount of proceeds below which the target will not be obligated to consummate the transaction. The cash condition hopefully represents a number the sponsor group believes it can reasonably achieve given their banking syndicate, network, access to capital, and the target company itself.

Since cash in trust is subject to redemption, the easiest way to make progress on the cash condition up front is to secure commitments for a PIPE investment. We've done plenty of work on PIPE financing in the past, and we've seen a strong correlation between deal performance and the amount of PIPE financing.

But there's also a lot we can learn from SPAC deals' minimum cash conditions. We took all the closed SPAC deals since 2019 and lined them up below with the minimum cash condition on the x-axis and the deal's current market price on the y-axis. We used a log scale for a better visualization.
There's a significant positive correlation between a deal's minimum cash condition and where it's currently trading. This may simply confirm many readers' natural intuition -- larger businesses tend to perform better as SPAC deals and also have greater capital requirements. (We've explored the relationship between enterprise value and deal success in the past.)

There's also a cluster of deals in the lower left corner that are worth mentioning. If a deal didn't have a minimum cash requirement, we used the $5mm net tangible assets threshold instead. Do you notice anything those SPACs all have in common? Not one of them is trading above its cash in trust value from closing. If you're looking for a single factor to predict the ultimate success of a deal, you could do a lot worse than the deal's minimum cash condition.

You could also use the ratio of the deal's minimum cash condition to the size of the SPAC's initial trust account, as shown below.
The read on the above chart is pretty straightforward. If a SPAC and its acquisition target aren't trying to hang onto at least half of the trust account, the outcomes have been disappointing.

We frequently tell first-time SPAC sponsors the most important thing they can do to support a deal is to line up committed equity financing (via PIPE, FPA or some kind of backstop arrangement) at the time their transaction is announced.

So we wanted to take this analysis a step further and look at what fraction of each deal's minimum cash condition was satisfied with committed financing at deal announcement.
The majority of SPAC deals from the past 10 years traded below cash in trust between announcement and deal closing. Shareholders were largely yield-focused and a high redemption count was likely. That meant that a deal without much in committed capital might struggle to get over the finish line, potentially leading to the target relaxing the deal's minimum cash condition or to last-minute creative financing arrangements.

These days, SPACs are getting the benefit of the doubt and more than half of pending deals are trading above cash in trust per share. And 44 of this year's 59 deal announcements contained some form of PIPE or alternative equity financing.

It's striking to see how much more frequently SPAC deals are covering most of (or greater than!) their minimum cash condition at deal announcement. One cause is that it must be easier to sell a $10 PIPE investment if your common stock is already trading at $11 before announcement. And when we see a transaction announced with a $200mm minimum cash condition and a $300mm PIPE commitment, we can infer with high likelihood that the PIPE was upsized and/or oversubscribed after the initial deal terms were agreed upon.

That scenario is likely fairly bullish for a SPAC deal. After all, if PIPE investors are competing to put more money into a deal, other institutional investors and retail may follow. The chart below demonstrates a strong correlation between meeting your minimum cash condition at announcement and trading performance.
A handful of deals have traded well without any PIPE or FPA. But for the most part, SPACs forced to rely solely on their trust accounts have struggled. Of the 20 deals in this data set with no committed capital at transaction announcement, only three are currently trading above $10 per share.

There's been a flywheel effect in SPACs over the past couple years. Exciting business combinations delivered great returns to front-end investors and attracted higher quality sponsors, who then can bring more exciting companies to the table.

Hopefully that trend continues to produce deals the market is enthused about. If you're trying to keep a pulse on the market (beyond individual deal fundamentals), make sure to watch those cash conditions and how they're being financed.

New S-1's
  • Investindustrial Acquisition Corp. (IIAC) filed to raise $350mm without a specific sector focus. IIAC is led by Roberto Ardagna, who leads a team focused on companies with high growth potential at InvestIndustrial, a mid-market European independent investment firm. The SPAC has a forward purchase agreement with affiliates of its sponsor for up to $250mm. Deutsche Bank and Goldman Sachs are joint book-runners.

  • dMY Technology Group, Inc. III (DMYI) filed to raise $250mm for an acquisition in mobile apps and related AI or machine learning companies. DMYI is led by the same team as dMY Technology Group I (DMYT) and dMY Technology Group II (DYMD). DMYT raised $230mm in February 2020 and announced a business combination with Rush Street Interactive in July 2020. DMYD raised $276 in August 2020 and has not announced an acquisition target. CEO Niccolo de Masi is the chairman and former CEO of Glu Mobile (NASDAQ: GLUU), a freemium mobile gaming company. Chairman Harry You, who served as the EVP of EMC Corporation (formerly NYSE: EMC), was a co-founder of GTY Technology Holdings (GTYH), which raised $552mm in November 2016 and merged six SaaS businesses to form GTY GovTech, a cloud-based service provider to state and local governments, in February 2019. Goldman Sachs is sole book-runner.

  • Natural Order Acquisition Corp. (NOAC) filed to raise $250mm to acquire a company that is disrupting the animal-based protein and food industry. Chairman Sebastiano Cossia Castiglioni is a partner at Blue Horizon Group, a worldwide investor in plant-based companies. CEO Paresh Patel has managed his private investment office, Sandstone Investments, since 2014. From 2005 to 2014, Patel was the founder and managing partner of Sandstone Capital, an investment fund managing more than $1bn focused on long-term investments in public and private companies in Asia. Chardan and Barclays are joint book-runners.

  • Global SPAC Partners Co. (GLSP) filed to raise $200mm for an acquisition in the Middle East, North Africa or South & Southeast Asia. CEO Bryant Edwards and COO Stephen Cannon served as COO and CFO, respectively, of Twelve Seas Investment Corporation (TWLV), which raised $207mm in June 2018 and acquired Brooge Energy Limited (NASDAQ:BROG) in December 2019. See here for a full history of Cannon’s SPAC involvement. GLSP is pioneering a unique subunit structure, with each unit containing one subunit and one-half warrant, and each subunit containing one share and one-quarter warrant which will not separate until GLSP consummates a business combination. I-Bankers is sole book-runner.

  • L&F Acquisition Corp. (LNFA) filed to raise $200mm for an acquisition in governance, risk, and compliance (GRC) and legal technology and software (collectively, GRCL). LNFA is led by Jeffrey Hammes and Adam Gerchen. Hammes is the former chairman of Kirkland & Ellis LLP, growing the firm's revenues from $1.4bn to more than $4bn when he retired in 2019. Gerchen is co-founder, and since 2018, CEO, of Keller Lenkner, a law firm that specializes in class and mass actions, arbitrations, and multi-district litigation matters. Victory Park Capital Advisors, which sponsored a $207mm SPAC focused on fintech earlier this year, is a strategic partner. Jefferies is sole book-runner.

  • PropTech Investment Corporation II (PTIC) filed to raise $175 for an acquisition in PropTech. PTIC is a sequel to PropTech Acquisition Corporation (PTAC), which raised $173 in November 2019 and announced a business combination with in July of this year. PTIC brings back Daniel and Thomas Hennessy, founder and managing partner of real estate strategies, respectively, of Hennessy Capital, an alternative investment firm that focuses on the industrial services, infrastructure services and real estate industries. See here for a full history of Daniel Hennessy’s SPAC involvement. Cantor Fitzgerald is sole book-runner.

  • Kingswood Acquisition Corp. (KWAC) filed to raise $150mm for an acquisition in financial services with a focus on the wealth management, financial advisory and investment management sectors. KWAC is led by Gary Wilder, CEO of KWG, a publicly traded wealth and investment management group with over $7bn in AUM. KWAC will be supported by two principal financial backers, KPI (Nominees) Limited and Pollen Street Capital Group. KPI is wholly owned by Kingswood Property Finance LP, a UK private investment partnership that is in turn wholly owned and controlled by Gary Wilder and KWAC director Jonathan Massing. Pollen Street is a global alternative asset investment management company focused on the financial and business services sectors. Oppenheimer is sole book-runner.

  • Seaport Global Acquisition Corp. (SGAM) filed to raise $125mm to acquire a company emerging from a reorganization or distressed situation. SGAM is led by Stephen Smith, founder of Seaport Global Asset Management LLC, an SEC registered investment advisor. B. Riley is sole book-runner.

  • LifeSci Acquisition II Corp. (LSAQ) filed to raise $75mm for an acquisition in healthcare in North America. LSAQ is a sequel to LifeSci Acquisition Corp. (LSAC), which raised $66mm in March 2020 and announced a business combination with Vincera Pharma in September 2020. LifeSci Capital is sole book-runner.

Deal News
  • Churchill Capital Corp II (CCX) announced a deal to acquire edtech companies Skillsoft and Global Knowledge Training. The deals reflect an equity value of $1.5bn and CCX expects more than $170mm in PIPE commitments, including from global technology investor Prosus, which has committed to invest $100mm with an option to upsize. The transactions are expected to close in January 2021.
  • CC Neuberger Principal Holdings I (PCPL) announced a deal to acquire E2open, a network-based provider of cloud-based, end-to-end supply chain management software. The deal reflects an enterprise value of $2.6bn and includes a $520mm PIPE as well as a $200mm forward purchase commitment from Neuberger Berman. No closing timeline has been given.
  • Replay Acquisition Corp. (RPLA) announced a deal to acquire Finance of America, an end-to-end lending and services platform. The deal reflects an enterprise value of $2bn and includes a $250mm PIPE. The transaction is expected to close in the first half of 2021.
  • AMCI Acquisition Corp. (AMCI) announced a deal to acquire Advent Technologies Inc., a hydrogen fuel cell developer. The deal reflects an enterprise value of $358mm and is expected to close in Q4 2020 or early 2021.

  • FS Development Corp. (FSDC) announced a deal to acquire Gemini Therapeutics, a clinical stage precision medicine company developing innovative treatments for genetically defined age-related macular degeneration (AMD). The deal reflects an enterprise value of $265mm with shareholders rolling 100% of their equity. The transaction includes a $95mm PIPE led by institutional healthcare investors including Wellington Management and Fidelity Management & Research and is expected to close by January 2021.

  • Insurance Acquisition Corp. (INSU) closed its acquisition of Shift Technologies on 10/13/2020, with no public shares redeemed. Ordinary shares and warrants are now trading on the NASDAQ as “SFT” and “SFTTW.”

  • Software Acquisition Group Inc. (SAQN) closed its acquisition of CuriosityStream on 10/14/2020, with 84% of public shares exercising redemption rights. Ordinary shares and warrants are now trading on the NASDAQ as "CURI" and "CURIW.”

  • Forum Merger II Corp. (FMCI) closed its acquisition of Ittella International on 10/15/2020 with less than 0.1% of public shares redeemed. Ordinary shares and warrants are now trading on the NASDAQ as “TTCF” and “TTCFW.”

  • FinTech Acquisition Corp. III (FTAC) closed its acquisition of Paya on 10/16/2020 with 16.5% of public shares exercising redemption rights. Ordinary shares and warrants begin trading on the NASDAQ as “PAYA” and “PAYAW” on Monday, 10/19/2020.

  • Bridgetown Holdings Limited (BTWN) raised $550mm in an upsized IPO for an acquisition in technology, financial services, or media in Southeast Asia. Units contain one-third warrant coverage.
  • Spartacus Acquisition Corp (TMTS) raised $250mm for an acquisition in telecom. Units contain one-half warrant coverage.
  • Motion Acquisition Corp. (MOTN) raised $115mm in a downsized IPO for an acquisition in transportation software technology. Units contain one-third warrant coverage.

  • Turmeric Acquisition Corp. (TMPM) raised $85mm in a downsized IPO for an acquisition in biotechnology with an emphasis on oncology and rare disease therapeutics. Units contain one-third warrant coverage.

  • 5:01 Acquisition Corp. (FVAM) raised $80mm for an acquisition in biotech in North America and Europe. FVAM is listed as common stock with no warrant coverage.

Upcoming Meetings and Deadlines
  • 10/20/2020 AMCI liquidation deadline (results not yet released from 10/16/20 extension meeting)
  • 10/22/2020 DPHC Lordstown approval meeting
  • 10/26/2020 KBLM 180 Life Sciences approval meeting (liquidation deadline 11/9/2020)
  • 10/26/2020 ALAC Charter extension meeting (liquidation deadline 10/26/2020)
  • 10/26/2020 ARYB Cerevel Therapeutics approval meeting
  • 10/27/2020 CPAA Advantage Solutions approval meeting
  • 10/28/2020 ANDA Charter extension meeting (liquidation deadline 10/31/2020)
  • 10/28/2020 SPAQ Fisker approval meeting
  • 10/30/2020 HCCO SOC Telemed approval meeting
  • CFFA set a date of 11/3/2020 to approve its transaction with GCM Grosvenor.
  • MNCL set a date of 11/4/2020 to approve its transaction with AerSale.

  • Bloomberg reported that Softbank’s Vision Fund plans to unveil a SPAC within the next two weeks.
Disclosures: Site administrators may maintain positions in various SPAC securities and may trade in or out of those securities at any time without notice. Information from is provided for informational purposes only and should not be relied upon as the basis for any investment decision. Nothing on is a recommendation or solicitation to buy or sell any investment.