The SPAC is back.
Alignvest Management Corp., the Toronto-based operator of a special-purpose acquisition company, or SPAC, that successfully took over a private U.S. telecom company in 2016, launched a $250-million initial public offering recently for the next generation of SPAC.
The new company is called Alignvest Acquisition II Corp. and like a new-and-improved version of a cellphone that comes with the hottest new gizmos, this SPAC features a financial innovation meant to give the SPAC more firepower for staging a takeover.
The new wrinkle is a $113-million commitment of capital to the SPAC from Alignvest's founders, cash that will be deployed alongside the $250-million expected from outside investors when the SPAC decides to make an acquisition. Founders include serial entrepreneur Reza Satchu, who is chief executive officer of the SPAC, along with former Goldman Sachs Canada CEO Tim Hodgson and former Rogers Communications Inc. CEO Nadir Mohamed. The current CEOs of Rogers and Magna International Inc. are also backers.
"We believe that this structure will not only reduce the chances of not completing an acquisition, but that it will also serve to increase the calibre of potential targets given the heightened certainty of capital," Alignvest said in a news release. Alignvest plans to acquire a private company with a proven management team and strong growth potential in a sector that the SPAC's backers understand. Alignvest wants the courtship to play out discreetly, rather than acquiring a business through an auction.
Launching the SPAC with committed capital is meant to overcome a problem that has plagued SPACs since these vehicles debuted in U.S. capital markets in the 1990s. SPAC shareholders have the right to vote on any transaction proposed by the company's management. If shareholders don't like the deal, they can redeem their shares for the IPO price, draining cash from the SPAC. The possibility that money won't be there to close a deal creates considerable uncertainty for managers of a SPAC and the company they target. According to SPAC Analytics, a U.S. website that tracks the sector, a third of the 257 SPACs launched since 2003 never closed an acquisition and end up returning cash to investors.
Toronto-based Alignvest was one of six companies that pioneered SPACs in Canada over the past two years by raising approximately $1-billion, and is currently the only member of that first generation of SPACs to have a takeover play out relatively smoothly. Alignvest acquired and took the name of Trilogy International Partners Inc., a Bellevue, Wash.-based telecom company that runs mobile-phone networks in New Zealand and Bolivia.
Acasta Enterprises Inc., another Toronto-based SPAC, acquired three companies last year. But Acasta had to go back to markets to raise an additional $160-million to finance the acquisitions after the majority of its original shareholders opted to redeem their shares for cash.
Scotia Capital Inc. and Citigroup Global Markets Canada Inc. are leading the Alignvest's SPAC IPO. Citigroup is a leading investment bank in the U.S. SPAC community.
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