March 18, 2022
Activism: Is a Wave of “SPACtivism” Coming?
This recent Forbes article by Okapi Partners’ Bruce Goldfarb says that recently deSPAC-ed companies may face a wave of activism this year. This excerpt says that Third Point’s recent initiative at Cano Health may be a preview of things to come:
Third Point’s push may be one of the first instances of a prominent activist investor targeting a SPAC – but it won’t be the last. In addition to depressed share prices, SPACs have other features that may draw the attention of activists. It’s important to remember: companies that went public through a SPAC merger are very new to the public markets and didn’t go through the typical underwriting process that comes with an IPO. That difference alone could leave both their managements and boards unprepared for an activist approach, although the problems may be greater than just a lack of underwriter diligence.
Specifically, the corporate governance of a typical SPAC is especially vulnerable to criticism. A recent study notes that since SPAC sponsors usually hold significant stakes in the company, as well as seats on the board, there can be an inherent conflict between their interests and those of public shareholders. Activists could also seek to challenge typical aspects of SPAC governance structure, including dual classes of shares and staggered boards. Further, many SPAC boards still include members held over from pre-merger days, who may be criticized for not having the relevant experience needed to oversee the acquired business in its current form.
Bruce adds a word of caution to activists targeting SPACs – their campaigns aren’t likely to be easy. That’s because the governance features that make them attractive targets, as well as sponsors’ large continuing ownership stakes in them, make SPACs tough targets.
– John Jenkins