SPACS AND SHAREHOLDER ACTIVISM
R&C: Reflecting on the last 12 months or so, could you provide an overview of interest and activity surrounding special purpose acquisition companies (SPACs)? What factors have caused this area of the market to experience an explosion of growth?
Salzberger: Special purpose acquisition companies (SPACs) have become an integral part of the transactional menu for several reasons. Compared to traditional initial public offerings (IPOs), SPACs are viewed as providing greater certainty to target companies – targets know the approximate amount of cash they are going to get from the sponsor and private investment in public equity (PIPE) investors – and may allow younger, ‘pre-revenue’ companies to go public faster because they can provide projections to the market, unlike in an IPO. Sponsors also get the benefit of large stakes in the post-merger company in return for seeding the SPAC and executing the merger. Investors, in turn, receive warrants and the ability to redeem their stock at trust value, providing both downside protection and greater upside. These economics, combined with volatility in the traditional IPO and M&A markets, the ability to tap retail shareholder excitement for investment during the pandemic, and the increasing sophistication, and sometimes celebrity, of SPAC sponsors, have all led to a sharp spike in activity.
Jan-Mar 2022 Issue
Innisfree M&A Incorporated