Fortress Value Acquisition Corp. (FVAC.U), filed for a $300 million IPO on Friday evening, continuing the trend of big-name, 1/4 warrants SPACs coming to market in 2020. Fortress Value will have a broad focus, but will look to acquire a business that could “benefit from a hands-on owner with extensive investment and operational expertise.” Fortress Investment Group, which previously co-founded Mosaic Acquisition Corp., and recently combined with Vivint Smart Home (VVNT), will be sponsoring this SPAC.
Looking at this team, FVAC will be led by Joshua Pack, who will be in the role of Chairman, and is a Managing Partner of the Credit Funds business at Fortress, where he heads the illiquid credit investment strategies and serves on the investment committee for the Credit Funds business. Mr. Pack will be joined by Andrew McKnight, as CEO. Mr. McKnight is also a Managing Partner of the Credit Funds business at Fortress, but whereas Mr. Pack heads the illiquid credit investment strategies, Mr. McKnight heads the liquid credit investment strategies at Fortress. So they’ve got both strategies covered.
Additionally, this team also has the coveted prior SPAC experience. Mr. McKnight and Mr. Pack served as directors of Mosaic Acquisition Corp., and R. Edward Albert III, who will be President of FVAC, served as Chief Operating Officer of Mosaic. Mr. Albert is currently a Managing Director of the Credit Funds Business at Fortress. So clearly, this is a big, brand-name team, that knows its way around the SPAC market. So do the terms fit the SPAC?
Well, as mentioned above, FVAC is a 1/4 warrant SPAC. And similar to Churchill III, it can extend three months beyond it’s given 24 if it has executed an LOI or definitive agreement with a target company. Additionally, FVAC has the ability to remove $750,000 a year of earned interest to fund its working capital, which works out to $0.025 per share per year. Interestingly though, the sponsor is purchasing their at-risk private placement warrants at $2.00, which should make public warrant holders happy. The prior 1/4 warrant deals (and the ones on file to IPO) have spanned a broad range of at-risk purchase prices from as low as $1.00 (Churchill III, CC Neuberger), to $1.50 ( Conyers Park II, Flying Eagle, DFP Healthcare) to $2.00 (Social Capital II & III, Gores IV).
However, the $2.00 feels appropriate given that it implies a value of $0.50 per quarter warrant. But it also feels appropriate if you look at how many at-risk private placement warrants there are in relations to the public warrants. If you look at the table below, FVAC’s at-risk private placement warrants are 53% of the total number of public warrants. On the other hand, CC Neuberger will have more at-risk warrants post-IPO than it will public warrants, which seems lopsided.
1/4 Warrant SPACs
Lastly, FVAC has the ability to call their public warrants at $10.00 for shares, in addition to cash and cashless exercise. This term has become commonplace among the elite, tier-1 deals, so it’s no surprise to see it here for FVAC too.
In summary, these terms seem well matched for the team given their experience and stature. And while those extra three months if they need to extend, on top of their 24 months duration, is generally not well-liked among investors, we’re probably going to see it more frequently in subsequent brand-name SPACs. It just makes sense now due to the current market conditions and provides an additional safety net. So if you’re a team that can command that term, you’re probably going to try and get it.
As with all of the current crop of SPACs on file to IPO, look for this deal to price as soon as possible in roughly two weeks time.
Summary of terms below: