They say the day you sign a client is the day you start losing them.
Two great examples of this truism of recruiting are found in coaching a college football team and sponsoring a SPAC deal, writes Kevin Mays with EverEdge, whose article is reprinted here with permission.
What sports fans see on the field is just a tiny fraction of the effort behind the scenes of college football. Coaching, institutional knowledge, team building, game plays, health, fitness and all the rest. It’s not too much of a stretch to say 90% of the value of a football team is invisible to the untrained eye.
SPAC sponsors also do a lot of work behind the scenes, trying to frame the intangible assets of a target company in a clear and positive way to keep investors on board. The moment of sale (game day) is just the tip of the iceberg in the SPAC sponsor’s role. If eliminating redemptions entirely may not be possible, keeping them to an absolute minimum is the next-best goal.
The University of Alabama’s Crimson Tide football team is coached by Nick Saban. The legendary coach has represented the gold standard for college football recruiting for the past 16 years. He follows a methodology he calls “The Process.”
The best coaches have a knack for recruiting the best players. But as with money, wealth is not what you earn, it’s what you can keep. The best college coaches know this and have a knack for also encouraging their biggest, strongest and fastest players to stay on the team during the dreaded “transfer portal.”
The transfer portal offers players a one-time chance to switch colleges without incurring the penalty of sitting out a year. The rules mean coaches are permanently in “sales mode,” spending their precious energy trying to dissuade the best players from chasing greener pastures.
SPAC sponsors have their own “transfer portal” for capital. Like the best college football players, investors may already be on board with the deal, but as a deadline looms, they sometimes get cold feet. Sponsors are therefore constantly re-selling the investors on the benefits of a deal rather than focusing on more important things. It can be a frustrating dynamic.
In an odd way, the market downturn of 2022 made the re-recruitment job a bit easier. While the S&P 500 fell about 19% over the calendar year, most SPAC stocks hovered near $10 per share and they became a port in the storm for nervous capital. This helped SPAC sponsors convince investors that now is a great time to put their money to work in a business.
But massaging the worries of skittish investors is never easy, which is why Saban’s “Process” is such a good strategy. It predicts that the best way to keep investors keen on a deal is for SPAC sponsors to focus on the “seven seconds” of due diligence as soon as a target is identified.
Once a combination agreement is in place, sponsors must immediately dive in and get to know every aspect of the target business. This can’t be a simple box-checking exercise. It must be a thorough investigation of its assets and liabilities, its cost and profit centers and all the rest.
Breaking the company down into its constituent parts means giving special consideration to the target’s intangible assets – its brand, its networks of customers and suppliers, intellectual property, know-how and other types. Understanding these intangible assets are the only way to fully capture a company’s value and keep SPAC investors fully informed and engaged with the deal.
Done right, the due diligence process goes a long way to giving investors the comfort they seek that the deal is good and will perform well over the long term. That, in turn, can go a long way toward lowering redemptions.
That’s why SPAC sponsors should study Saban’s “Process.”
Because, just like college football coaches managing their players, SPAC sponsors are also constantly wooing investors, while living in fear they might leave without warning. This makes re-recruiting the most daunting challenge facing SPACs today. Read more.
