SPAC Weekly 8/31: Special Purpose Acquisition Corps 101

SPAC Weekly 8/31: Special Purpose Acquisition Corps 101

SPAC Weekly 8/31: Special Purpose Acquisition Corps 101 by Troy Marchand, Foundry Capital

The third edition of SPAC Weekly, an offering of, for the week of August 31st.

New SPAC Announced:

First up this week is a newly announced SPAC, which filed on 9/17/2015. Pacific Special Acquisition Corp (PAACU) announced that it completed an IPO of $50 million. The Company is a British Virgin Islands exempted company, operating out of The People’s Republic of China. EarlyBirdCapital is the sole underwriter on the deal. I am always skeptical about Chinese securities, but that has no bearing on this deal directly.

Terms of the new unit will consist of one common share, one right to own one-tenth of a common share after a merger is completed, and one warrant worth a half of a common share. Two warrants will allow the purchase of a full share for $12 each. The SPAC will target a Chinese company with an enterprise value of between $200 and $300 million. The Chairman of the SPAC, also a director of Pacific Securities is Jian Tu. Previously he served as general counsel for the Shanghai Stock Exchange, and has held director roles for several public companies.

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Pacific Securities, the sponsor of the SPAC is a $5.3 billion market capitalization company with offices in China and Laos providing investment services.

Recently Announced Deal:

Garnero Group Acquisition Corp (GGAC) announced a proposed merger with Grupo Columbo, one of the largest Brazilian men’s clothing retailers. The offer is for roughly $60 million in stock with plans to raise another $100 million in a private placement. Levy Acquisition did something similar with a private placement when they merged with Del Taco (TACO). At first glance, this looks like a good deal and one worth digging deeper. This proposed merger is a much-improved deal than Garnero Group’s proposed merger earlier this year with a cyber security company pre-revenue. This deal seems to have much greater odds of being approved and seems like they are acquiring a good business. Grupo Columbo needs the deal to shore up its balance sheet and restructure its capital table. Grupo Columbo shareholders have committed to buying $30 million in stock on the open market or in the private placement. Garnero Group will issue 6 million shares to Columbo, and Garnero shareholders will retain a 25% stake in the combined new entity.

The combined new entity will have an enterprise value of $332 million, of which $170 million will be in debt. The investor presentation outlines EBITDA and forward guidance, with expected 2015 EBITDA to be $38.5 million, which is lower than 2014, but it is only because the US Dollar has strengthened versus the Brazilian Real. Using expected EBITDA, and given Enterprise Value, the combined new entity would trade at 8.6x, but that is in USD. Other than US investors investing in the new entity, there is no reason to convert the currency into USD as headquarters and sales will remain in Brazil.

As of this writing, the common stock of Garnero Group was trading at $9.90, which is less than the cash amount held in the escrow account.

SPAC’s Without Mergers Approved:

Pace Holding Corp (PACEU)

WL Ross Holding Corp (WLRH)

Hennessy Capital Acquisition Corp II (HCACU)

Quinpario Acquisition Corp 2 (QPAC)

Harmony Merger Corp (HRMN)

FinTech Acquisition Corp (FNTCU)

Easterly Acquisition Corp (EACQU)

Barington/Hilco Acquisition Corp (BHACU)

1347 Capital Corp (TFSCU)

Dundee Acquisition Corp (DAQ-UN.TO) – Canadian

Infor Acquisition Corp (IAC-A.TO) – Canadian

E-Compass Acquisition Corp (ECACU) – Chinese

Electrum Special Acquisition Corp (ELECU) – Focused on Gold

Pacific Special Acquisition Corp (PAACU)

Garnero Group Acquisition Co (GGAC) – Brazilian

Global Partners Acquisition Corp (GPAC)

JM Global Holding Company (WYIGU)

GP Investments Acquisition Corp (GPIA) – Brazilian

Arowana Inc (ARWA) – Australian

Atlantic Alliance Partnership Corp (AAPC) – Led by NFL free agent

CB Pharma Acquisition Corp (CNLM)

Hydra Industries Acquisition Corp (HDRA)

AR Capital Acquisition Corp (AUMA)

DT Asia Investments Ltd (CADT) – Hong Kong

Terrapin 3 Acquisition Corp (TRTL)

Committed Capital Acquisition Corp II (CCAQ)

Cambridge Capital Acquisition Corp (CAMB)

The idea is to keep investors up to speed on Special Purpose Acquisition Corps, also known as SPAC’s, on a weekly basis. A SPAC is a blank check company created for the purpose of acquiring a private company. It is a backdoor route to taking a private company public while enriching the teams that executes on completing a deal. Due to the nature of what we just described Wall Street does not pay attention to SPAC’s and they often time are under the radar investments that come and go in cycles. They were all the rave in the 2005-2008 period, prior to the financial collapse, and were in hibernation for many years, but in the past couple years we have seen quite a few SPAC’s announced. Some transactions are really good, and some are awful, so please pay attention to the players involved and what they are buying. Investors will treat bad deals very harshly, either voting down the deal entirely or thrashing shares post-deal announcement. I have many examples of each. The hard part writing weekly about SPAC’s is the unknown and infrequent announcement of a deal or IPO. Therefore, some weeks may be longer than others strictly due to this nature. We intend to keep this weekly update to the point and use terms any investor can understand, regardless of your experience level. We apologize to those who fully understand SPAC’s as we get those new to the asset up to speed on the inner workings. Feel free to email us [email protected] for specific questions and we will do our best to respond in a timely fashion. Thanks for reading and we look forward to providing more color around all things SPAC’s. E-mail Troy at [email protected] to be placed on the distribution list.

The purpose of this weekly update is not meant to be a recommendation to buy or sell SPAC securities but is for informational purposes only. Please do your own research and read the 300 plus pages of the S-1. We also try to be completely accurate with the information we report, so please excuse any misstatements and feel free to let us know in the comments section or an email. While we will attempt to keep the lists exhaustive of all deals, please feel free to let us know if you are aware of one that we missed, both North American and Europe listed.

Disclaimer: The Author of this newsletter may hold positions in the securities mentioned personally or in his fund, Foundry Value Fund, LP. He may trade in and out of the position without obligation to update readers.

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