Since many of the IPOs we’re now seeing come to market were initially filed “pre-Covid” and the teams have had to adjust their terms “post-Covid”, I thought it would be helpful to provide a summary of the changes (so far) in an effort to better track the trends.
As you can see below, of the recently priced SPACs, all of the teams have had prior SPAC experience. Plus, four of the five initially started with 1/4 warrant structures and all now reflect 1/3 warrant structures. The fact that only elite SPACs have priced to-date makes sense since these teams would be the first to attempt an IPO given their successful prior history and brand-name status. I.e., you don’t send in your weakest player when the game is on the line. However, you’ll notice that every single IPO that has priced to-date has had to adjust one or more of their main terms (note: if a term has been changed, it has been highlighted in blue).
We have ten more SPACs on deck to IPO and while many of them have yet to file new S-1 amendments, of the ones that have, some have already made adjustments in anticipation of pricing in the next two weeks. In particular, GigCapital3 and Roth CH, which re-filed last night. Additionally, B. Riley II and Jaws Acquisition Corp., which filed as recently as last Thursday and Tuesday, respectively, have already taken into consideration the current climate and their initial filings reflect current market terms. So no changes are expected with those two.
Collective Growth is widely expected to price tonight, but it is unlikely any additional changes will be made on their SPAC either. However, it will be interesting to see if the rest of the filed deals make further adjustments in order to make their IPOs more sell-able.
In the meantime, any new SPACs yet-to-be-filed will probably reflect these changes for at least through May. After that, hard to say and a lot depends on what the world looks like heading into June. But for now:
- Brand-name teams are looking at 24 months and 1/3 warrants.
- Sub-brand name and/or new teams without SPAC experience yet are looking at 18-24 months with 1/2 warrants.
- The tier below that, 3/4’s to 1 full warrant with 18 months.
- The small, Asia-focused deals, 12 months plus multiple 3-month extensions and full warrants and maybe rights and most likely, many of these will need to start over-funding trusts as well.
But keep in mind, the above is not necessarily what every investors wants, but what the bankers will try to go out with (some will push the envelope too). Also keep in mind that the SPAC pendulum of terms can change on a dime. What could potentially swing terms the other way (in favor of teams) is if we have a number of successful combination announcements and closings. Remains to be seen if that can happen during Covid, but successful deals have provided significant momentum for the whole category in the past. Let’s see what happens.