Alignvest’s deal could be blueprint for Canadian SPACs

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They call themselves the SPAC mafia.

They are an unofficial but influential group of investors who make or break any deal proposed by a special-purpose acquisition corporation, or SPAC. And this hard-to-please group has found a deal they like in Alignvest Acquisition Corp.'s bid for a U.S. wireless company, one of three Canadian SPACs currently seeking shareholder approval for a takeover.

The SPAC mafia – a mix of hedge funds and more traditional money managers – has a proven track record in U.S. markets, where SPACs have been around for more than a decade and raised $34.4-billion (U.S.). Information service SPAC Analytics found 213 of these companies have been created since 2003, and two out of three managed to get an acquisition approved before time ran out and the SPAC had to return its cash to shareholders.

In Canada, we are still waiting on the first successful acquisition from any of the six SPACs that went public since 2015, raising more than $1-billion (Canadian). The first company to announce a potential deal, Infor Acquisition Corp., opted to cancel the transaction in October, knowing it would not pass muster.

SPAC godfathers seem prepared to bless the Alignvest acquisition, which is scheduled to be put to a vote in January. That's because the Toronto-based SPAC gave the market exactly what it wanted with a clean, simple bid for Seattle-based Trilogy International Partners, a private company owned by proven telecom executives that runs wireless networks in New Zealand and Bolivia.

The outlook is less rosy for takeovers proposed by Acasta Enterprises Inc. and Dundee Acquisition Ltd. Founders of these SPACs are finding it's harder to invest their cash than it is to raise it from investors.

To understand what the SPAC mafia is thinking, simply look at how these securities traded once a deal was announced. The three SPACs currently looking for takeover approvals all went public at $10 a share. Regulations require the companies to invest within two years or give back $10 a share.

So if a SPAC trades for more than its IPO price after unveiling a takeover, investors are signalling they see a deal that creates value. Only Alignvest shares consistently traded above $10 since announcing a deal.

The three SPACs also issued warrants when they went public, which give owners the right to purchase additional shares. Again, the price of the warrants only rises on expectations of a successful takeover. Alignvest warrants tripled in price after making an offer for Trilogy. While the price of Acasta and Dundee warrants rose after the companies committed to acquisitions, the move was muted.

So while Alignvest is seen as a near-lock to close its deal, traders who cater to the SPAC mafia peg the chance of Acasta winning approval for its takeover of three private companies at between 50 per cent and 60 per cent, and the odds are slightly worse for Dundee's bid for a student housing business.

If Alignvest is successful, it will reflect the fact that founders delivered on what they promised in the IPO: A proprietary deal with committed managers, at an attractive price, for a company with growth potential.

The company tapped its web of corporate connections – particularly those of board member and former Rogers Communications Inc. CEO Nadir Mohamed – to fund Trilogy, which faced short-term financing issues, but was not looking for a buyer when Alignvest came calling. The dynamics allowed Alignvest to negotiate a takeover on terms cheaper than the valuations of comparable wireless companies.

Rather than handing cash to owners of the company it was buying, Alignvest got Trilogy's shareholders, including wireless pioneer and Seattle Mariners owner John Stanton, to stay 100 per cent invested and toss in an additional $5-million (U.S.) of their own dough. And Alignvest's backers showed their faith by chipping in another $61-million.

Finally, the business strategy is straightforward: Wireless networks in New Zealand and Bolivia are a generation behind those in Canada and the U.S. Trilogy management and Bay Street telecom analysts have seen this movie before, they know what's needed for the next instalment.

If the SPAC mafia does indeed sign off on Alignvest's takeover, as they are expected to do, the script will be written for successful acquisitions by Canadian rivals.