SPACs

How Does An Investment Bank Determine the Purchase Price?

- The greatest utility an Investment Bank can provide is a disciplined view on Valuation - The SPAC should be disciplined with valuation but should be willing to stretch for the right opportunity - Precedent Transactions and publicly traded comparable companies can serve as useful data points in identifying a range of values for a company - A Discounted Cash Flow Analysis using a realistic set of projections is important to ensure that a proposed valuation meets or exceeds the client's expectations - A Leveraged Buyout Model based on market leverage points and acceptable sponsor equity returns will provide a sense of valuations from financial sponsors

What Is A SPAC?

- A SPAC is a Special Purpose Acquisition Company - It is a blank check company in which sponsors raise capital to identify a company to take public and DeSPAC by merging - SPAC allows a larger amount of return due to its structure by providing the sponsor and investor a large amount of equity and warrants - In a SPAC IPO, they issue Units while in a Traditional IPO, they issue Shares. Units include a Share and a Warrant - A Warrant is a contingent right to buy shares in the future similarly to a Call Option, while a Strike Price is the price at which the Warrant can be exercised usually at a price of $11.50 - SPACs are able to capture all the great things of an IPO but they can be used for a variety of different companies and methods that is more akin to Private Equity - Most of the companies taken public via a SPAC would not be taken public through an IPO

What is An Investment Bank's Role In The Preparation Phase For A SPAC IPO?

- An Investment Bank's market knowledge, investor relationships, and execution experience are invaluable assets in the preparation phase of a SPAC's IPO - Assist by providing legal documents such as an S-1 that need to be completed and filed before the IPO process can begin - Develop investor presentations given its access to research and design teams who can enhance the quality of a presentation - Create a compelling script for the investor presentation to help secure investors - Facilitate and coordinate communication between the parties involved such as lawyer and PR firms - Coordinate all the services provided by the Coverage team, Equity Capital Market, and Syndicate which assist in the preparation and execution of the IPO - Facilitate meetings between potential investors and the SPAC management team

What is the Relationship Between SPAC and Investment Bank?

- As SPAC's market momentum continues, it becomes incumbent on advisors to become familiar with its structure, its advantages and disadvantages, and how an Investment Bank can assist with the opportunity - An Investment Bank can serve in multiple advisory roles related to SPACs through IPO Underwriting, Buyside Advisory, Sellside Advisory, PIPE Placement Agents, and Capital Market Advising

What Are The Three Main Stages Of Communication With Potential Investors Ahead of A SPAC's IPO?

- Early Outreach sees Investment Banks conduct calls with potential investors in an effort to secure anchor investments - Testing the Waters sees Investment Banks facilitate calls between management and potential investors with communication being scripted, post filing of the S-1, and a majority of the book being filled - Deal Roadshow sees an Investment Bank organize a roadshow to build the remaining book after registration of the offering and established pricing

What is The SPAC Formation and Initial Public Offering Process? (First Step)

- In the formation phase, a financial sponsor assembles a management team and funds an equity stake in the SPAC - The equity investment funds initial business operations that will be used to launch an IPO and identify a target company - After selecting underwriters, the SPAC files a registration statement with the SEC to initiate the IPO - The SPAC then launches a roadshow that culminates in underwriting and the IPO, with the capital being raised through issuance of Shares and Warrants - The proceeds of the IPO are held in a trust account pending an investment opportunity

What is The Investment Bank's Involvement Through The IPO Process?

- Industry Coverage leads the IPO process presentation with due diligence and drafting of the S-1, responsible for crafting and communicating its story, and works with management on presentation - Equity Capital Market is the information hub between investors, sales, and SPAC investors during the Testing the Waters phase to gather feedback - Syndicate is responsible for arranging the Testing the Waters phase, building the order book, and providing informed pricing recommendations

How Does An Investment Bank Conduct Due Diligence?

- Investment Banks play a critical role in the due diligence process as they need to make sure the client truly understands the value of the company and are aware of any concerns - Track due diligence questions, answers, and requests - Assess financial data - Identify data inconsistencies - Validate investment thesis

What is The Target Search and Identification Process? (Second Step)

- SPACs typically have two years from the IPO to identify a target and complete an acquisition - The SPAC identifies target companies and conducts due diligence on potential targets - Once a target is identified, the SPAC and target negotiate terms and a Letter of Intent is executed

What is NCP's Strategy?

- Sponsor management teams to invest and pay for the costs of taking a SPAC public - Invest directly in SPAC IPOs with primary investors being hedge funds - Invest in PIPEs and buy shares below market value - Take advantage of downturn within the SPAC industry

How Does An Investment Bank Add Value?

- The Business Combination process provides an opportunity for both M&A and ECM product bankers to leverage their execution knowledge and expertise - Experience with investor wall crossing and finding PIPE investors - Dialogue with institutional investors - Decrease risk execution through the development of a marketing strategy to assist with press release language and deal announcement - Provide dedicated Sales and Trading teams - Draft and advise on the 8-k filing process with the SEC within 4 days of closing the transaction

What is the DeSPACing Process? (Third Step)

- The DeSPACing process requires shareholder approval in accordance with SEC regulations - These regulations include a commitment of founder shares to the acquisition, a redemption offer whereby SPAC shareholders can redeem shares, and the filing of the 8-k which effectively acts as a registration statement for the transaction - With majority approval from shareholders, the selection process ends with a definitive Purchase and Sales Agreement between the acquisition target and SPAC - At this point, additional funds may be required and are typically provided by either a PIPE or traditional sources of Debt financing

What is the Managing A Public Company Process (Fourth Step)

- The acquisition is complete and the new public company must comply with all public company reporting obligations - This requires enhanced governance, controls, and technology and operating procedures - Now that the operating company is public, this creates additional opportunities for an investment bank to engage and serve the company