With an abundance of SPACs seeking targets, there is tremendous opportunity for qualified companies. When compared to an IPO, SPAC mergers are:
- Less Costly: the costs to go through the merger process are very low relative to an IPO
- Faster: the entire process can take as little as 4-5 months
- Less Risky: unlike an IPO, the company’s valuation is negotiated at the start of the process
To qualify for a SPAC merger a company should ideally meet the following criteria:
Reasonable Valuation of at Least $250M
From a practical standpoint, SPACs typically acquire companies that are valued at a minimum of 3X the amount of cash in the SPAC. This is due to the dilutive effect of the sponsor’s carry in the SPAC. If the valuation of the target company gets too close to the amount of cash in the trust, the dilution associated with the sponsor’s carry becomes too large relative to the overall transaction size.
As most SPACs are $100M+, with a few exceptions under $100M, we recommend companies only pursue SPAC mergers if they are able to justify a valuation of $250M or greater.
Ability to Justify Valuation
Anyone can provide a number they think their company is worth, but to get market acceptance the company must be able to justify its valuation. This can be done using comparable companies’ valuations, relevant metrics, etc.
If a company is unable to effectively justify their valuation, it is likely the transaction will have very high redemptions and the stock will fall post-close.
Must Have a Clear Use of Proceeds
If a SPAC transaction is successfully completed, the target company receives a large influx of capital. The company must be able to show a clear use of proceeds and benefit from this capital.
Given the large number of SPACs seeking targets, there is tremendous opportunity for qualified targets.
Let’s determine if your company is a fit.
Must Have Excellent Growth Prospects
SPAC mergers are best suited for companies experiencing or on the cusp of experiencing high growth.
Management must be public market palatable, have industry/domain experience, M&A experience, and public company experience.
The following items are not required, but are helpful:
Ability to Bring Strategic or Financial PIPE Investors
Most SPACs line up a PIPE to close simultaneous with the merger. This protects against redemptions by ensuring that the company has the minimum amount of cash required to close the transaction.
If a company is able to bring PIPE investors to the table, it can speed up the process and increase the attractiveness of the company to potential SPAC targets.
While not a requirement, having management or board members with prior SPAC experience can assist with the transition from privately held company to publicly traded company.
Let us help you navigate the SPAC merger process.
Given the number of large SPACs seeking targets, there is tremendous opportunity for qualified targets. Let’s determine if your company is a fit.