“Q2 Kickoff SPACs”: A Comparison of Terms
To kick off the quarter, we have three SPACs currently getting ready to IPO and since SPACs tend to price in groups, another “comparison of terms” seemed warranted. To state the obvious, we’re going to call these three the “Q2 Kickoff SPACs”.
As always, the SPACs are listed by size, left to right. However, you will notice that all three are 100% in trust, 1/2 warrant structures. In fact, of the last six SPACs to price, all had 100% in trust and 1/2 warrant structures, with the exception of Tuscan Holdings, which had a full warrant. Commanding 1/3 of warrant has gotten a lot harder in the past two months and would appear only reserved for A+++ teams such as of the “Gores Metropoulos” caliber.
Focusing on the two larger-sized SPACs – Iswill and Replay – the only obvious difference is the duration of the SPAC. 18 months for Iswill and 24 months for Replay. Other than that, the headline terms are amazing similar. So what is the difference? Sector focus and team for sure.
If you read Iswill’s proposed business section in their prospectus, the team makes a compelling argument for focusing on the technology/software sector and more importantly, they are focusing on companies in the sub $1 billion range, the “almost unicorns”. As we’ve discussed previously, a SPAC with a warrant overhang and questionable amount left in trust post-vote is probably not the most attractive route to getting public for a unicorn (although Churchill really knocked it out of the park). However, Iswill makes a strong case for tech/software companies in the $500 million to $1 billion range. And as a side note: whoever wrote the business section did a nice job. Well done.
On the other hand, Replay is focusing on companies in Argentina and Brazil. Plus, if you’re going to be looking in South America, Replay has a very strong and experienced management team in that area (led by Edmond Safra and Gregorio and Gerardo Werthein). However, the political instability in that region is certainly a concern. Additionally, while 18 months is always going to look more attractive to investors (and it’s where Iswill has an edge), 24 months is probably very necessary to complete a deal in South America. That may account for the $25 million intended purchase of units in the IPO by the Sponsors. They needed to pay up to get that 24 months.
Looking at B. Riley Principal Merger Corp., it’s another bank-sponsored SPAC in the vein of CF Finance and Chardan Healthcare. However, this SPAC has a general/broad focus where they can pursue a combination in any industry or geographic region, but intend to focus on businesses in the $300 million to $1 billion EV range. Again, this team has a ton of experience (you have to these days), but in my opinion, it’s gotten a lot harder to tell a compelling story and demonstrate an effective strategy without having a targeted sector focus. This is because investors have gotten a lot more savvy about SPACs. Plus, since there are so many SPACs right now (64 searching with 3 on file) that investors have gotten a lot choosier. A team really needs to make a persuasive pitch and not having a sector focus makes that pitch considerably more difficult to point to actionable opportunities. Having said that, a great track record does help.
On the whole, all of these SPACs look attractive. Both Iswill and Replay probably edge out B. Riley’s SPAC simply for having a targeted sector focus, but you can’t go wrong with owning any of these. As far as which of Iswill and Replay has the edge, it has to come down to personal preference of sector. Iswill’s strategy caught my attention just a little bit more than Replay’s, but honestly…it’s pretty close.
Look for Replay to be the first out of the gate with pricing tomorrow night for trading Thursday, April 4th. Iswill and B. Riley should follow late next week.