December SPACs: A Comparison of Terms
For those keeping score, we now have five SPACs on file to IPO in December, so we thought a comparison of terms would help for those doing a little Holiday SPAC shopping. Although, SPACs make frustrating gifts…you don’t know what’s inside the box until 18-24 months later.
The five SPACs below are listed in order of size, left to right.
Obviously, Chardan’s SPAC has the most noticeably different terms, whereas the other four seem to have come to some sort of consensus as to where the market is for a mid-sized deal – less than 24 months, 1 share + 1 warrant. Ironically, the strongest of these teams, which is arguably, CF Finance, takes it a step further with overfunding the trust at 101% and adding a $30 million forward purchase. If you recall, CF was the first of these SPACs to file and the terms are extremely investor friendly (for reasons we discussed here). However, with each subsequent SPAC recently filed, the terms have gotten a little more aggressive. The result being, now CF’s terms look out of whack compared to Chardan Healthcare.
Speaking of Chardan’s SPAC, it was a bold move filing these terms in a challenging market and there’s guaranteed to be some push back. As we’ve said, Chardan is a seasoned SPAC underwriter, but given how far off the mean they are, it’s going to be a difficult sell when you’re competing for dollars against four other SPACs with more attractive terms.
Next we have Schultze, Monocle and Andina III – all similar sizes and structures, with the exception of Andina III’s Right added to its unit and Monocle’s life. These three will come down to which team and sector your prefer. However, regarding the teams, Andina III is most likely viewed as the weakest of the three simply based on prior track record (read here), hence the addition of the Right.
However, and this is an important note, of these three SPACs (Schultze, Monocle and Andina III) only Schultze’s at-risk capital is fully at-risk to the SPAC team. Cowen is participating in both Monocle’s and Andina’s private placement purchases – $833,330 of Monocle’s purchase and $875,000 of Andina III’s (before over-allotments). Is that significant? Well, money is a great motivator and an even bigger motivator is the potential to lose it. So it goes back to the theory of – the more skin in the game you have, the more motivated you are. However, one could also argue that the underwriter participating in the purchase is motivated as well. But isn’t that what the deferred underwriting fee is already for?
So to recap, we can essentially group these five SPACs into two sets. First, you have the two underwriter-backed SPACs (Chardan Healthcare and CF Finance), but each with very different sets of terms and sizes. Second, we have the three other SPACs with nearly identical terms and sizes (Schultze, Monocle and Andina III). Of Chardan Healthcare and CF Finance, obviously CF Finance is going to look more attractive simply based on the current terms. That’s an easy answer. The less obvious answer is the second group. However, given the composition of the at-risk capital of Schultze, Monocle and Andina III, and taking into account past performance of the Andina team, Schultze looks to have the edge.
However, terms can always change and deals don’t have to price in December. It’s still early, so we’ll be on the lookout for any changes. Stay tuned.