Chardan Healthcare 2 Files for an $85M SPAC


Chardan Healthcare 2 Files for an $85M SPAC

Mar 10, 2020 INTEL by Kristi Marvin

Chardan Healthcare Acquisition 2 Corp. (CHAQ.U), filed for an $85 million IPO on Monday morning, focusing once again on healthcare companies in North America.  Additionally, the Chardan Capital Markets-backed SPAC will once again be led by senior members of the bank’s management team.

Gbola Amusa, who will be Executive Chairman of Chardan Healthcare 2 (and was Chairman of Chardan Healthcare 1), currently serves as Partner, Director of Research, and Head of Healthcare Equity Research at Chardan Capital Markets.  Jonas Grossman, who is Partner and Head of Capital Markets at Chardan, will be President, CEO and Director of Chardan Healthcare 2, the same roles he held for Chardan Healthcare’s first SPAC.  Same for George Kaufman, who is Managing Director and Chardan’s Head of Investment Banking.  Mr. Kaufman will be CFO and Head of Strategy, and was also CFO and Head of Strategy for Chardan Healthcare 1.  Furthermore, Guy Barudin, who is currently a Director at Chardan, will be joining the executive team as Chief Operating Officer.

As for the Board, Michael Rice, Richard Giroux and Matthew Rossen, will be back again as Directors, but will joined this time by Isaac Manke and R.A. Session II, as additional Directors.

Looking at the terms, this is a near-carbon copy of the first Chardan Healthcare SPAC.  Chardan Healthcare 2 will have 24 months to find an acquisition, 1 warrant for 1/2 share included in its unit, a $16.00 warrant call trigger for cash or cashless exercise, and a flat $500,000 underwriting fee (no upfront vs. deferred) to be paid by the Sponsor. However, where Chardan Healthcare 2 differs in terms is in size ($85 million vs. $70 million) and ability to remove interest for working capital.  Chardan Healthcare 1, did not remove any of the earned interest, but Chardan 2 will have the ability to remove $300,000 per year, which equates to $0.035 per year, or $0.07 if they need two years. Again, in a very low interest rate environment, the trust might not even be able to generate $300,000 per year since the current 6-month T-Bill rates are around 0.27%.  Interest rates may eventually move back up, but there is the potential for this SPAC to have a redemption value 24 months from IPO of only $10.00.

However, as has been a constant refrain over the past 6 months or so, SPACs aren’t too worried about yield investors anymore.  And in the case of SPACs with a specific industry focus, and especially in the case of an underwriter like Chardan, which has a proficiency in healthcare/life sciences SPACs (see: IMVT, PHGE, LSAC), rounding up long-only investors won’t be an issue.  In fact, it should be a very easy sell.

Lastly, B. Riley will functioning as Qualified Independent Underwriter (QIU) on this SPAC and look for it to price asap, perhaps the week of March 23rd.

Summary of terms below:

Chardan Healthcare 2 summary of terms