The SPAC sector has seen two notable attempts at innovation since 2021, one offered by serial SPAC sponsor Eagle Equity Partners, the other by Pershing Square Capital Management LP. But neither had attracted imitators, The Deal reports.
In January 2021, Eagle Equity registered Spinning Eagle Acquisition Corp., a SPAC that aimed to raise $2 billion with Goldman Sachs & Co. LLC as sole underwriter. While the size of the raise and the single underwriter were notable, what set the
registration apart was the SPAC’s structure.
Eagle Equity proposed that if it didn’t need all of its capital for an acquisition, it would spin off a second SPAC with the remaining capital. That SPAC could then do a second transaction. The proposed structure would give the SPAC the option of merging with a large target company or doing multiple deals. Any spinoff transaction would have to be completed under the timeline for the first SPAC.
Bill Ackman offered another attempt at innovation with Pershing Square SPARC Holdings. which the SEC approved Sept. 29. Though not a SPAC, the vehicle’s origin stems from Pershing Square Tontine Holdings Ltd, which raised $4 billion in the largest SPAC IPO ever.
The SPAC agreed to buy a minority stake in Universal Music Group that failed to win SEC approval and drew a number of lawsuits. Ackman liquidated the SPAC in July 2022.
Pershing Square SPARC is a special purpose acquisition rights company and has a 10-year timeline rather than one of 12 to 24 months like a SPAC. Also, with a SPARC, investors do not invest at the time of the IPO as in a SPAC but delay investment until the SPARC has a target acquisition in place. Pershing Square SPARC plans to collec $1.5 billion from investors.
Investors in Pershing Square’s SPAC own rights to the SPARC by design, but if other SPARC’s go forward, rights will be distributed at the time a deal is announced. The SPAC investors also received checks after Ackman liquidated the SPAC. Ackman has sought to make his SPARC more attractive by pledging Pershing Square will invest between $250 million to $3.5 billon as an anchor investor. The back-end cash is attractive to investors and targets, but it seems unlikely that other sponsors will create SPARCs, let alone or invest so heavily in them. Read more.
