More info on TPB Acquisition Corp. I’s “QIB Structure”

In this morning’s newsletter, I mentioned TPB Acquisition Corporation I’s (NASDAQ:TPBAU) QIB structure, or their “Stakeholder Alignment Structure”, where they have put a unique twist on the recent trend of using Qualified Institutional Buyers, or “Anchor Investors” in their IPO.  However, I did miss an important point that bears drilling down on so there’s no confusion.

As many of you have noticed, there has been a recent trend of using Qualified Institutional Buyers, or “QIBs” to purchase up to 9.9% order in the IPO.  For those orders, the QIBs are given promote shares.  However, in TPB’s case, their QIBs only receive promote if they also participate in the Forward Purchase at the combination closing.  In the newsletter this morning, I mentioned that TPB’s QIBs could receive up to 50% of the SPAC founders promote for participating, but…I didn’t flesh out that that 50% is based on redemptions.  This is a very important distinction to make because it’s not an automatic 50%.  That’s only in the event the entire trust is redeemed. If no shareholders redeem, the QIBs only receive 10%.

For example, if the Sponsor announces a deal and the share price trades up, and the shareholder vote shows zero redemptions, the Sponsor gets to retain 90% of their promote.  The other 10% goes to the QIBs that participated in the FPA. Alternatively, let’s say the announced deal is not well received by investors and trades down.  In that case, the FPA investors are most likely going to provide the majority (or nearly all) of the capital in the transaction with the assumption that most of the trust is redeemed.  In that case, the FPA investors are given downside protection in the form of up to 50% of the promote shares.

This makes sense.  Most PIPE investors are not freely given promote for just participating, particularly if the deal is successful.  The incentive for participating in the PIPE is that you believe in the transaction and you are buying at $10.00 and believe the share price will trade up.  However, in TPB’s case, for participating at both IPO and in the FPA, they will still transfer 10% of the promote if no shareholders redeem.

Alternatively, by stating that TPB will transfer up to 50% of the promote in the event the transaction is not well received greatly incentives the SPAC team to bring back an absolute winner of a deal.  No sponsor likes to freely give up their promote and definitely not at the 50% level. And again, as further clarification, this is a sliding scale between 10% and 50% of promote, depending on how many shareholders redeem.

All told, this aligns Sponsor, QIBs and public SPAC shareholders.  In the event TPB brings back a great deal, everybody wins.  In the event it’s a bad deal, the QIBs have additional protection on the downside, public SPAC shares have redemption rights and the Sponsor has to give up up to 50% of their promote.

Apologies for the confusion and hope that clears things up.