July 23, 2021

SPACs: Alternatives to PIPE Financing for De-SPACs

SPAC buyers have typically looked to the common equity PIPEs for funding to support de-SPAC transactions.  But in recent months, that market has tightened, and some SPACs have opted for alternative financing structures. This Freshfields blog reviews recent de-SPACs in which alternative financing structures have been used, and describes the terms of those financings. This excerpt provides an overview of the alternative arrangements that have been used in recent deals:

Over the past few months, with the PIPE market becoming tighter but with 400 SPACs still seeking targets for business combinations, we have been seeing some de-SPAC deals being announced with alternative and even creative financing structures.  Some SPACs have raised funds through the issuance of convertible debt or preferred stock, providing investors with fixed returns with additional upside through the convert features.

Others have utilized common equity PIPEs but also included warrants together with a lockup on the shares and warrants – again to increase potential PIPE return.  Some deals have included sponsor and other backstops to cover potential shareholder redemptions, thus reducing execution uncertainty.  In some cases there has been no PIPE or other financing at all.

There’s another tidbit in the blog that I’d like to highlight.  Not too long ago, I received a question about whether there was any reason that common equity PIPEs had to be priced at the $10.00 SPAC IPO price.  I said that I didn’t think there was, but I also didn’t know of any examples where the PIPE was priced below $10.00.  Thanks to the blog, I do now:

Almost every common equity PIPE is sold at $10.00 a share – the same as the SPAC’s IPO price and close  to the anticipated trust value of the shares in the event of redemptions.  However, another way to improve the economics for PIPE investors is to sell them discounted shares.  In the DPCM Capital, Inc. / Jam City, Inc. business combination, announced on May 19, 2021, the SPAC obtained commitments from PIPE investors to purchase 11,876,485 shares of SPAC common stock for approximately $100,000,000.  This translates into a heavily discounted price of $8.42 per share.

John Jenkins