Ten months after going public, Canaccord Genuity’s private-equity arm is close to taking over a business, allowing the investment bank to try its hand at an acquisition strategy that has felled some reputable Canadian names.
Canaccord Genuity Acquisition Corp., the special-purpose acquisition corporation (SPAC) the investment bank set up in July, 2017, has reached an acquisition agreement with Ontario-based Spark Power Corp.
Created in 2009 by three co-founders with capital-markets experience, privately owned Spark has 400 employees and posted $80-million in revenue last year − 90 per cent of which came from inspecting, maintaining and servicing power and electricity assets.
An exact purchase price has yet to be determined because Spark itself is in the process of three potential acquisitions. However, Canaccord Genuity’s SPAC will pay 8.5 times Spark’s pro forma earnings before interest, taxes, depreciation and amortization (EBITDA) as of June 30. At the moment, Spark is projected to report adjusted 2018 EBITDA of $25-million, which could put the price around $200-million.
Canaccord Genuity’s acquisition must be approved by its SPAC’s shareholders, and recent developments will force them to scrutinize the proposed deal. A number of SPACs have gone public since the financing structure arrived in Canada in 2015 − and a number have flamed out. Some had trouble getting shareholder approval, while others saw their value plummet after investors approved their acquisitions.
Known as “blank-cheque companies,” SPACs raise money through an initial public offering and use the proceeds to strike an acquisition within a specific time frame – typically two years. They buy privately owned companies, and being acquired allows the targets to go public without launching time-consuming and expensive IPOs.
After going public in 2015, Infor Acquisition Corp. tried to buy a stake in lease-finance company ECN Capital Corp., but the deal was cancelled before going to a vote because it became clear Infor’s shareholders would oppose it.
As for those with completed deals, Alignvest Acquisition Corp., whose backers included former Rogers Communications Inc. CEO Nadir Mohamed and former CEO of Wind Mobile Canada Anthony Lacavera, is now trading at $4.41 after acquiring Telecom company Trilogy International Partners LLC, which runs wireless networks in New Zealand and Bolivia.
A similar situation played out at the SPAC formerly known as Gibraltar Growth Corp., which acquired vintage retailer LXR Produits de Luxe International Inc. in 2017. The stock is now trading at 93 cents, after going public at $10.
The highest-profile problems played out at Acasta Enterprises Inc., which went public in 2015 and whose backers included Tony Melman, formerly of Onex Corp., Air Canada CEO Calin Rovinescu, former Royal Bank of Canada CEO Gord Nixon and former federal Liberal cabinet minister Belinda Stronach. The SPAC raised $403-million in an IPO, but by this March, the company was in dire straits, with all of its founders underwater and an aircraft-leasing business it acquired sold for 60 per cent of its purchase price.
Canaccord Genuity raised $30-million with its own SPAC, much less than those that launched in 2015 and 2016. Although the investment bank typically advises rather than owns companies, Pat Burke, Canaccord Genuity’s president of capital markets, said in an interview that the dealer was being introduced to a lot of early-stage companies that were not ready to go public, but were quality firms that could use financing.
“We saw a lot of very good companies that were not yet capital-markets ready,” Mr. Burke said. Since launching the SPAC IPO, he said Canaccord Genuity has looked at more than 100 companies.
He acknowledged that some Canadian SPACs have had troubles, but expressed confidence about the current deal because of Spark’s recent growth and its quality leadership, which includes a board with directors such as former Ontario Securities Commission head Howard Wetston, who also previously ran the Ontario Energy Board.
Most importantly, tangible growth is ahead. The power servicing industry has many small, independent companies. In such industries, a single company will often acquire, or “roll up,” smaller firms. “We anticipate multiple rollups, starting very soon,” Mr. Burke said.
If SPAC’s shareholders approve the transaction, Canaccord Genuity will hold just less than 10 per cent of the company.