Earlier this year, we discussed the arrival and usage of Special Purpose Acquisition Corporations (SPACs) in Canada, focusing on the logistics and purpose of these capital holding shell companies.
To recap, a SPAC is a shell company that raises money through an initial public offering (IPO), then searches for a private company to acquire and bring to the market (Target Company). SPACs were thought to be particularly useful in Canada as (i) they fill a traditional gap in capital markets, making private acquisitions in the $100 to $500 million range, (ii) they provide Target Companies with an easier and additional means of access to public markets (as compared to a traditional IPO) and (iii) they provide investors who would not be able to buy into hedge or private equity funds, the ability to participate in the acquisition of private operating companies traditionally targeted by those funds.
Despite these attractions, the successful usage of SPACs and its impact on private M&A had been underwhelming for some time now, with some attributing this downfall to the long, tedious process involved in acquiring a Target Company which requires shareholder approval. However, much has changed as SPACs have recently demonstrated their place and importance in Canada's capital markets.
In fact, one SPAC has recently demonstrated how these shell corporations can be as "nimble" as hedge or private equity funds in acquiring a Target Company – or, in this case Target Companies. Acasta Enterprises Inc. (Acasta), a SPAC that raised $402.5 million in its IPO in July 2015, had recently announced its proposed acquisition of not one, but three private companies, with an enterprise value of $1.2 billion. For all three acquisitions the vendors will receive Acasta stock, which is said to align the interests of all parties.
Tony Melman, chief executive of Acasta, stated that Acasta was "never going to be a one-trick pony" and that "the acquisitions demonstrate [Acasta's] ability to access unique and proprietary deal flow at compelling valuations". Indeed, Acasta's investors are seemingly pleased as well: on December 20, 2016, Acasta announced that its shareholders displayed overwhelming support for these deals, with over 89% of the votes cast in favour of the acquisition, which is now scheduled to close on January 3, 2017.
Following the close of this acquisition, Acasta will become a private equity manager and will launch a private equity fund to pursue further market opportunities. According to Melman, future business sectors could include infrastructure, energy, and high-end manufacturing.
If this transaction is indicative of the future, it could very well be that the SPAC market will develop in Canada as originally contemplated, proving to be a useful and unique vehicle for certain investors and private companies alike.
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