December 21, 2020

De-SPACs: Your Shareholders Might “Just Say No”

Okapi Partners’ Bruce Goldfarb has authored an interesting Forbes article on some of the issues associated with corralling investor support for de-SPAC transaction.  While SPACs are raising a boatload of money this year, Bruce says that they’re by no means assured of getting the shareholder vote required to approve a de-SPAC. Here’s an excerpt:

While raising capital for a SPAC may seem like smooth sailing in today’s market environment, sponsors may face rough seas when they try to get their new shareholders to approve the deals they strike. Each SPAC generally has a 24-month window to complete a deal to buy a company, which must be approved by a vote of the SPAC shareholders, or else the entity must liquidate and return its capital to investors. The turnover in the shareholder base that occurs once a deal is announced, coupled with the arduous task of getting retail shareholders to vote and the details of the voting process, means that not all of these deals will get approved.

At this writing, 202 of the SPACs that completed IPOs in 2020, and 19 of the 2019 vintage, are still looking for deals. Given the vast amount of SPAC capital chasing a finite number of acquisition targets, and the relatively short window in which to make an acquisition, we are likely to see a number of SPAC sponsors trying to do deals at inflated valuations. However, SPAC shareholders believe they bear no risk in voting down an acquisition that they view to be over-valued – they’ll either have a chance to vote on a better deal later on, or they’ll get their money back with interest.

The article goes on to discuss the key aspects of planning and executing the solicitation of shareholder support for a de-SPAC that sponsors should pay close attention to in order to maximize their chances of obtaining shareholder approval.

John Jenkins