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SPAC sector springs to life behind Alignvest IPO

Toronto-based Alignvest launched an initial public offering in early May for its latest SPAC with a $250-million target.

Mark Blinch/The Globe and Mail

A record-setting $515-million debut for the second special-purpose acquisition company (SPAC) from Alignvest Management Corp. is expected to breathe new life into the sector by inspiring offerings from rival firms.

Toronto-based Alignvest launched an initial public offering in early May for its latest SPAC with a $250-million target. The company decided to increase the size of the IPO last week in the face of strong demand from Canadian and U.S. investors.

Between public investors and a $113-million commitment from Alignvest's founders, the SPAC ended up with more than $500-million in its war chest, which can fund the takeover of a business worth up to $2-billion. Previously, the largest SPAC IPO was a $350-million offering from Acasta Enterprises Inc. in July, 2015.

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Shares in the new SPAC, Alignvest Acquisition II Corp., sold for $10 each and began trading last Thursday on the Toronto Stock Exchange, closing Monday at $10.05 a share.

Alignvest is now hunting for acquisitions in three broad sectors: business services, consumer products and the technology/media/telecom space. These areas are familiar territory to Alignvest backers, a team with diverse CEO-level experience in areas such as telecom, finance, jewellery chains, computer chip makers and auto parts manufacturers.

Alignvest's first SPAC began trading in 2015, with a $258-million IPO, and went on to acquire mobile phone operator Trilogy International Partners.

At the time, Alignvest was one of six companies to introduce SPACs to Canada and raise approximately $1-billion. The sector has existed in U.S. markets since the 1990s.

Several members of that first generation of Canadian SPACs were unable to land an acquisition, a problem that is also commonplace at U.S. SPACs. The mixed track record kicked off a debate in domestic financial circles over the sector's viability. Investment bankers say the success of Alignvest's latest IPO opens the door to offerings for a new generation of SPACs.

"SPACs are going to be getting a second look in the wake of what Alignvest accomplished, but the dealers and investors are going to be selective in the teams that they back," said an investment banker who worked on several SPAC transactions, including the Alignvest offerings.

Scotia Capital Inc. and Citigroup Global Markets Canada Inc. led the latest Alignvest offering. On the legal front, the company looked to Stikeman Elliott LLP and U.S. law firm Dorsey & Whitney LLP, while the underwriters used Osler Hoskin & Harcourt LLP.

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Investors who bought the recent Alignvest offering said part of the attraction was the $113-million commitment from the SPAC's backers, as this locked-in capital increases the chances that the SPAC can close a deal, overcoming a problem that consistently haunts these companies after they announce a takeover.

Under the rules that govern SPACs, 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, 78 of the 259 SPACs launched since 2003 never closed an acquisition and end up returning cash to investors.

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