SPAC pioneer Infor Acquisition Corp. just took all the fun out of running a special purpose acquisition corporation by giving up virtually all of the founding shareholders' $60-million in potential profit as part of the sector's precedent-setting debut deal.
Infor, one of six Canadian SPACs that collectively raised $1-billion over the past year, announced plans on Monday to be acquired by ECN Capital, a specialty lender that is being spun out of Element Financial Corp.
It's the first Canadian SPAC transaction to be announced, with a value of $220-million, and it's making heads spin in financial circles.
The structure of the Infor deal was something of a surprise. SPACs were pitched as blank cheque acquisition companies: The typical approach is to buy a private company, fix it up, then sell it or take it public.
This game plan has been around for two decades in U.S. markets, and came to Canada last year in the wake of regulatory changes. Rather than making an acquisition, Infor proposes being gobbled up by Element, a public company. If the goal was to be a minority investor in Element, Infor shareholders could have done without the SPAC.
Infor founder and chief executive officer Neil Selfe has a simple explanation for this turn of events: Infor looked at more than 40 potential transactions since going public last year, and the investment in Element was by far the most attractive opportunity.
While Mr. Selfe's explanation makes sense, the experience does not bode well for other SPACs. Infor's founders include some of the best-connected players on Bay Street – the list includes CI Financial chairman Bill Holland, ex-Ontario Teachers' Pension Plan fund manager Brian Gibson and former CIBC banker Richard Venn. So the question that's being asked runs along these lines: "If this crew can't find attractive private company targets, who can?" Story
A dose of irony for Trader Corp.
In a narrative now rich with irony, Trader Corp., the parent company of used-car publication Auto Trader, is grappling with a debt downgrade under the ownership of another private equity company.
This week, rating agency Moody's Investors Service downgraded Trader Corp. after Thoma Bravo acquired the company for $1.6-billion from fellow private equity player Apax Partners in early July. Because so much leverage was used in the acquisition, Trader Corp.'s debt will soar to more than eight times its earnings before interest, taxes, depreciation and amortization, prompting Moody's to lower the corporate family rating to B3.
That Trader Corp. must endure this heavy debt burden is a flashback. Yellow Media unloaded the company in a fire sale in 2011 – all because Yellow Media, best known for publishing phone books, was drowning in debt. The former owner had purchased the assets comprising Trader Corp. in deals totalling $1.2-billion, but sold them for $745-million. Story
Tim Kiladze: Time to tame these wild markets
This unending turbulence has finally beat me into submission. I may never understand why we've embraced wild markets that whipsaw back and forth, but I have come to accept that fighting our irrational groupthink is futile. We seem to like being silly, even when our retirement savings are at the whim of the wind.
Who else remembers when Brazil was touted as a new nirvana, chock full of hot investment ideas? Or when the shale oil and gas boom was supposedly unending? Or when the world was supposed to fall apart after the United States lost its Triple-A rating? The fervour with which investors reacted was on almost unimaginable levels.
The fact that so many people buy into hype – even supposedly smart institutional money managers – isn't all that surprising. Investors are always looking for the next great trade. FOMO (fear of missing out) is more than just millennial slang; it's a very powerful psychological effect.
What continually shocks me is the rate at which we pile in – and then, of course, pull out when the cracks emerge. Over a three-week span around the time the United States lost its Triple-A rating in 2011, the S&P/TSX Composite Index plummeted 14 per cent, and then climbed 9 per cent. We're like little kids playing Timbits soccer, forming a pack around the ball with our heads down. Story
Lexpert
The B.C. Court of Appeal's recent decision on Jaguar Financial v. Alternative Earth Resources has raised the ante for litigants attacking the conduct of boards during takeover proceedings.
"The case is an authoritative and detailed reminder that minority shareholders seeking the protection of statutory provisions must meet significant requirements so as to preserve a pragmatic balance between their rights and respect for the democratic rights of boards elected by a majority of shareholders," said Mark Andrews of Fasken Martineau Dumoulin LLP. Story
ON THE MOVE
Macquarie Capital Markets Canada Ltd. is losing a veteran energy analyst.
Chris Feltin, who has worked in equity research for 12 years at the Australian-owned bank and the Canadian firm it acquired, has decided to take a mid-career break.
Macquarie is now looking to replace Mr. Feltin, who has been managing director, oil & gas research, at Macquarie's Calgary office, where he focused on large cap producers and oil sands companies.
"I just wanted to hit the pause button and figure out what I wanted to do next," Mr. Feltin, 42, said. Story
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