Activists are nothing if not opportunistic, and this Sidley memo says that the huge piles of cash currently sloshing around in SPACs are likely to serve as “chum in the water” for activists. This excerpt says that activists may not even wait for the de-SPAC before targeting a SPAC:
Activism is present at all stages of the SPAC life cycle, but the risk and nature of activism varies depending on the stage. The potential for activism increases immediately after the SPAC’s IPO. Before the time a target is found, an activist may attempt to influence the choice of the target. It is also possible that an activist may at the same time have a stake in a potential target company that they wish to be targeted by the SPAC.
The risk of this activism increases as the SPAC approaches its expiration, which has a punitive impact on the sponsor. As a result, the SPAC sponsor is likely to become more desperate and perhaps less discerning in evaluating acquisitions. Activism risk continues after a target is selected during the de-SPAC process. Any time there is a shareholder vote on a substantial economic transaction, there is the potential for an investor to agitate against the deal.
In the late 2000s, there was a wave of activism against SPACs prior to a de-SPAC where activists would purchase shares of a SPAC at a discount with the intent of voting down any proposed merger and redeeming their shares for par value. While current SPAC structures have been modified to deter this specific type of activism, the risk of activism prior to a de-SPAC remains.
The memo also addresses the risks of “SPACtivism” following a de-SPAC transaction, and offers tips on how to prepare for activism both before and after the de-SPAC.
– John Jenkins