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Here’s a fun story from the FT’s excellent Ortenca Aliaj on Spac transactions, published overnight Tuesday:
The growing retail presence is particularly problematic for votes on extending the time to close acquisitions, which typically require 65 per cent of shareholders to agree. Votes on approving deals, by contrast, usually only require a simple majority. Spac backers, who typically own 20 per cent of the shares, also agree in advance to support transactions.
The difficulties of turning out the shareholder vote was highlighted in September when a Spac called Forum Merger II asked its investors for a one-month extension to complete its deal with frozen food company Tattooed Chef.
Only 61 per cent of shareholders voted in support, sending the Spac’s share price lower and prompting complaints from retail investors who said they had not been notified about the vote, a person with knowledge of the situation told the Financial Times.
Only after shareholders were given more time to vote — and many turned to Reddit, the online discussion forum, to encourage participation — was the extension eventually approved. The deal closed soon after.
It really has everything doesn’t it? Spacs, a company named Tattooed Chef with a pro forma $482m enterprise value, and shareholders trying to work out how to vote on company matters on Reddit. Truly, one for our times.
While you soak it in, this story does speak to a trend we’ve noticed developing in our inboxes over the past month. You see, in a bid to attract ridiculous valuations, the Spacs have spent a good chunk of time appealing to retail investors. Open up any of the deal decks, and you’ll see lots of glossy imagery and little in the way of hard numbers bar, of course, a valuation based on a 2027 ebitda multiple. Perfect if you want to just get the jist of a story, and worry about due diligence later.
Of course, attracting retail investors is a great idea to help your valuation. The problem is, when you want to consummate an acquisition that might help you achieve the cash flows to realise that valuation. As it turns out, the diamond-handed hodlers are just not that into the fuddy duddy of proxy statements and whatnot.
Hence, exasperated Spacs sending out passive aggressive statements to shareholders almost begging them to vote. As an example, here’s one sent Monday from Newborn Acquisition Corp (ticker: NBAC), which is hoping to close a deal to merge with charging company Nuvve.
You can almost taste the anxiety.
Newborn Acquisition isn’t the only one. Back in October, HL Acquisitions Corp sent this imploring missive out to shareholders about its potential deal with hydrogen company Fusion Fuels. And, of course, who can forget executives at Tortoise Acquisition Corp and truck electrifier Hyliion having to tweet about its proposed deal to get shareholders to vote?
Who can help? Well, Okapi Partners are launching a service to deal with just this issue, just so you got a feeling for how acute this problem might become for the slate of deals due to be voted on over the coming months.
This morning on FT Alphaville’s new daily Clubhouse chat (do join at 11am GMT/ 6am EST), former Alphavillain Brendan Greeley joked that investor relations might have to begin becoming au fait with the intricacies of r/WallStreetBets, Twitter and Discord in the new shareholder age.
Reading the above, it suddenly doesn’t seem like that much of a joke.
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