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Past Newsletters

May 24, 2021
Welcome to the SPAC Research weekly newsletter.
Lockups and Sponsor Concessions
It's been a turbulent year in SPACs, from unbridled enthusiasm and rapid-fire issuance to a massive cooldown and regulatory impediments.

Many in the financial media have taken the current slowdown as an opportunity to bash the product. One complaint is that SPAC sponsors, who start out with 20% of the SPAC's outstanding shares, can market operating projections for target companies in future years, but can cash out of their promote shares before those projections are shown to be accurate or not.

That objection strikes us as eminently reasonable; it doesn't seem appropriate for sponsors to be able to sell their entire equity position in futuristic companies well in advance of "the future" showing up. Last month's statement published by John Coates, the SEC's acting director of Corporation Finance, called safe harbor protection for forward-looking statements into question for SPACs. And sponsors are likely getting skittish about marketing operating projections too far beyond the present.

It seems like a good idea for almost all parties involved for the sponsor to lock up for longer. Every other stakeholder in a given deal can feel more comfortable if SPAC sponsors are forced to hold their position for multiple years after deal closing.

But rather than regulators forcing some sort of one-size-fits-all rule on the space, the market is beginning to impose these restrictions by itself. You can see on the chart below that back in 2020, sponsor lockups were unilaterally less than 24 months. But starting in February 2021, an increasing share of deals have had at least one tranche of sponsor shares that's locked up for 24 months or more (with longer lockups often imposed at deal signing, rather than from the SPAC's initial terms). And the share of deals where all promote shares are locked up for less than one year is also quite low.
SPAC IPOs <$120mm in size omitted from sample.
You could say that a sponsor's job is to find a great company and bring it to the public markets while helping to put shares into the hands of long-term aligned capital partners. While the SPAC market was red-hot, deals traded well but many shares went into weak hands. We believe the trend above shows us the market is starting to push sponsors to make a longer commitment to their acquisition partner in order to attract longer-term investors.

SPAC deals with aligned interests have historically been correlated with better stock performance. And while lockups are nice to see, sponsor earnouts are an even better way to keep all parties aligned.

The last time we looked at sponsor concessions back in February, we discovered that sponsors were keeping a greater fraction of their promote than ever before. We posited that a hot market and enthusiasm for the concept was responsible.

Now the pendulum has swung in the other direction, and you can see in the cohort analysis below that deals are starting to require sponsors to either forfeit or subject larger chunks of their promote to earnouts again. We expected to see a more dramatic trend taking shape -- although it's useful to remember that most of the April and May deals were conceived back in the "easy times" of winter 2021. The market's enforcement of sponsor concessions may keep increasing if things remain challenging.

The chart below shows what fraction of each SPAC deal's promote shares were unconditionally retained by the SPAC's sponsor -- that is, how many of the original promote shares were neither forfeited nor subject to earnout.
It's fascinating to see how much sponsors were getting squeezed last summer. Those deals likely originated in a moment when capital markets still felt very uncertain and when sponsors had weakened negotiating positions. You can see that more than one-quarter of deals from last August and September featured sponsors putting at least half of their promote at risk.

Promote retention trended higher through the rest of last year as the SPAC concept heated up. With the exception of an outlier month in January 2021, sponsors had been hanging onto more promote shares in Q4 2020 and Q1 2021, but now that trend is moving in the other direction.

We've been predicting a dispersion of outcomes for some time -- a world where top-tier and repeat sponsors can still get good deals done even as liquidation rates rise for the broader field. Some sponsors will find deals that stand on their own, and many others will need a lot of help. PIPE investors have mostly closed the door on deal financing for the moment, and until market conditions shift materially we should expect more pressure on sponsor promotes for the foreseeable future.

News From the Past Week

Deal News

  • Yunhong International (ZGYH) announced a deal to acquire Giga Energy Inc., a company that plans to become a global leader in carbon neutral energy solutions. The deal reflects an enterprise value of $7.35bn and includes an investment from Harvest Tech Investment Management (UK) Co., Ltd., of $307.7mm. No closing timeline has been given.
  • DPCM Capital, Inc. (XPOA) announced a deal to acquire Jam City, Inc., a mobile entertainment and gaming company. The deal reflects an enterprise value of $1.2bn and includes a $100mm PIPE at $8.42 per share. The transaction is expected to close by the end of this year.
  • SCVX Corp. (SCVX) announced a deal to acquire Bright Machines, a technology company that offers an innovative approach to intelligent, software-defined manufacturing. The deal reflects an enterprise value of $1.1bn and includes a $205mm PIPE with investors including XN, Hudson Bay Master Fund Ltd. and SB Management Ltd. The transaction is expected to close in 2H 2021.
  • Seaport Global Acquisition Corp. (SGAM) announced a deal to acquire Redbox, an American video rental company specializing in DVD, Blu-ray, 4K UHD rentals via automated retail kiosks. The deal reflects an enterprise value of $693mm and includes a $50mm PIPE led by Ophir Asset Management with investors including Lionsgate and Legendary Entertainment. The transaction is expected to close in Q3 2021.
  • Altimar Acquisition Corporation (ATAC) closed its acquisition of Owl Rock Capital Group and Dyal Capital Partners on Wednesday 5/19/2021 with 64.9% of public shareholders exercising redemption rights. Ordinary shares are now trading on the NYSE as “OWL.”
  • Bloomberg reported that COVA Acquisition Corp. (COVA) is in talks with Indonesian online travel company
  • Bloomberg reported that MedTech Acquisition Corporation (MTAC) is in talks with Memic Innovative Surgery, a medical device company that specializes in robot-assisted surgery.
  • Bloomberg reported that Omnichannel Acquisition Corp. (OCA) is in talks with home-insurance start-up Kin Insurance.
  • Reuters reported that Virtuoso Acquisition Corp. (VOSO) is in talks with British auto data start-up Wejo.
  • Bloomberg reported that Legato Merger Corp. (LEGO) is in talks with Canada’s Algoma Steel Inc.
  • CNBC reported that Aerion Supersonic, a Nevada-based company that planned to build business jets capable of silently flying nearly twice as fast as commercial aircraft, is shutting down. Aerion was previously rumored to be in talks with Altitude Acquisition Corp. (ALTU)

New S-1's
  • Integrated Rail and Resources Acquisition Corp. (IRRX) $275mm

  • Macondray Capital Acquisition Corp. I (DRAY) $275mm

  • InFinT Acquisition Corporation (IFIN) $175mm

  • TenX Keane Acquisition (TENK) $50mm

  • Catalyst Partners Acquisition Corp. (CPAR) raised $300mm for an acquisition in enterprise software. Units contain one-fifth warrant coverage.

  • Angel Pond Holdings Corp (POND) raised $250mm for an acquisition in technology in Greater China. Units contain one-third warrant coverage.

  • GigInternational1, Inc. (GIW) raised $200mm for an acquisition in the TMT, aerospace and defense, mobility, and semiconductor industries. Units contain one-half warrant coverage.

  • Skydeck Acquisition Corp. (SKYA) raised $200mm in a downsized IPO for an acquisition in media, technology, communications and digital health. Units contain one-third warrant coverage.

  • Graf Acquisition Corp. IV (GFOR) raised $150mm without a specific sector focus. Units contain one-fifth warrant coverage.

  • Aries I Acquisition Corporation (RAMM) raised $125mm for an acquisition in technology in North America, Europe and Asia. Units contain one-half warrant coverage.

  • Mountain Crest Acquisition Corp. III (MCAE) raised $50mm without a specific sector focus. Units contain one right and no warrant coverage.

Charter Extensions
  • TINV extended its charter through 11/27/2021 with a single $0.10 sponsor contribution to trust.
  • ESSC extended its charter through 8/24/2021 with a single $0.10 sponsor contribution to trust.
Upcoming Meetings and Deadlines
  • 5/24/2021 BRPA NeuroRx approval meeting (liquidation deadline 5/24/2021)
  • 5/27/2021 IPOE SoFi approval meeting
  • 5/27/2021 TDAC Charter extension meeting (liquidation deadline 6/1/2021)
  • 5/28/2021 STIC BARK approval meeting
  • 6/2/2021 JWS Cano Health approval meeting
  • 6/3/2021 TSIA Latch approval meeting
  • 6/3/2021 JIH Janus International approval meeting
  • 6/4/2021 DFHT CareMax Medical Group and IMC Medical Group Holdings approval meeting
  • 6/4/2021 GIX UpHealth/Cloudbreak Health approval meeting (liquidation deadline 6/10/2021)
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.