Investment bank Canaccord Genuity Inc. launched a special purpose acquisition corporation (SPAC) meant to pave the way for small Canadian companies to go public, one of two new SPACs announced on Monday in a sector that is coming back to life.
Toronto-based Canaccord is attempting to raise $30-million for a SPAC that would acquire a stake in a private company valued at $50-million to $250-million. This SPAC is meant to be a substitute for an initial public offering, as in recent years, IPOs have proved difficult for relatively small private companies that are attempting to raise less than $100-million.
Sources familiar with Canaccord's plans say if this concept is successful, the investment bank plans to roll out additional SPACs of similar size. Canaccord is not targeting a specific industry or region with this SPAC – the strategy is to simply find a private business that would benefit from being a public company. The investment bank is investing $2.5-million of its own capital in the SPAC and selling units at $3 each.
Separately, veteran private-equity investor Daniel Klass and former CIBC executive Jill Denham teamed up Monday to launch a $90-million tech-focused SPAC called Software Platform Partners Corp. The new venture is backed by Sagard Holdings ULC, part of Power Corp. of Canada, and features Sagard chairman and Power Corp. executive Paul Desmarais III as one of the SPAC's advisers.
As its name suggests, this SPAC plans to "build an industry-leading enterprise software platform through acquisitions and organic growth." Units are being sold for $10 each by a group of dealers led by TD Securities Inc., CIBC Capital Markets and National Bank Financial Inc.
SPACs were first created in U.S. capital markets in the 1990s, and there have been seven SPACs launched in Canada since 2015, following the introduction of new regulations that encouraged the structure. Under the rules that govern SPACs, the company needs to make an acquisition within two years, or return its capital to investors, and shareholders get to vote for or against any planned transaction.
A common problem for Canadian SPACs was uncertainty over just how much capital would be available when it came time to make an acquisition. SPACs raise money by selling units that consist of a share and a warrant. Investors such as hedge funds often voted in favour of an acquisition, then opted to redeem their SPAC shares for the original price, while keeping their warrants as what amounts to a free investment in the company.
Canaccord is attempting to close this loophole by having shares and warrants in its SPAC trade as one unit until after a transaction is approved. This is expected to ensure the SPAC has the money it needs when it comes time to close a transaction.
The Canaccord SPAC will have an external lead director, Davies Ward Phillips & Vineberg lawyer William Ainley, and initially feature Canaccord investment banker Brad Cameron as chief executive. Once the SPAC makes an acquisition, Mr. Cameron is likely to hand over the top job to the CEO of the company it purchases.
Canaccord is investing $2.5-million of its own capital in the transaction. Cormark Securities Inc. is working with Canaccord on the underwriting.
On the legal front, Goodmans LLP is counsel to both SPACs and Blake, Cassels & Graydon LLP is the law firm for both teams of underwriters.
Five Canadian SPACs raised approximately $1-billion in 2015, but several of these companies struggled to close transactions.
No new SPACs were launched in Canada until this May, when Alignvest Acquisition II Corp. raised more than $400-million, the largest debut seen in the sector. This SPAC is backed by Toronto-based asset manager Alignvest Management Corp., which previously used a SPAC to take over a mobile phone business, creating a public company called Trilogy International Partners Inc.