Revolution.Aero Opinion: SPAC to the Future

Deep Dive


“We have, in aggregate, executed over 20 transactions within or ancillary to the cannabis sector,” said the IPO prospectus for Stable Road Acquisition. The Special Purpose Acquisition Company (SPAC) made a compelling argument for why the cannabis sector needed investment.

Some 12 months later, it changed its mind. Stable Road is now buying space company Momentus Inc – a company focused on getting high in a different way.

California-based Momentus is offering a ‘last mile delivery’ service, which will help deliver satellites into orbit from a rocket. It is hoping to perform its first mission in December and then win contracts with satellite operators, defence companies and NASA. Stable Road and Momentus forecast a combined enterprise value of approximately $1.2bn on Nasdaq in early 2021.

This merger is one of the latest in a wave of SPAC deals that has been going on this year. SPACInsider reports say that a record 161 SPACs have floated so far in 2020 – compared with 59 in 2019. SPACs are blank-cheque companies which can be used to take a private company public. Upsides include lower costs and legal hurdles than with a traditional initial public offering (IPO). Crucially, SPACs can use future earnings forecasts (traditional IPOs rely on past performance).

“So now you can have a Nikola go public, or a Virgin Galactic and they can discuss where their future earnings can come from,” said Kirsten Bartok Touw, founder of specialist aviation finance boutique AirFinance, which advises companies looking to be bought by SPACs. “In the old world, you had to demonstrate a solid 50-100% growth year-on-year in the past, because you could not show forward-looking statements,” said Bartok.

Virgin Galactic – which is developing a spaceflight system for individuals and researchers – went public in October 2019 via a SPAC backed by venture capitalist Chamath Palihapitiya is another space example. “This left many scratching their heads around a pre-revenue company like Virgin Galactic going public,” said Cyrus Sigari, co-founder of investor Up Partners.

Sigari warns that going public is tough however you do it. “It comes with increased compliance and administration, Wall Street scrutiny, and the potential for meaningful distraction for the management team with activist investors and short sellers to name a few,” said Sigari.

Bartok stresses that companies also need to have a strong system ready to meet reporting requirements.

Industry specialists will have the edge

Not all SPACs change focus. A McKinsey & Co analysis found that ones led by people with C-suite operating experience outperformed those with purely experience in investing. This is because they “specialise more effectively and take more responsibility from the combination’s success”.

A recent SPAC led by Ken Ricci, founder of Directional Aviation and one of the most successful business aviation investors, is a perfect example of this. Ricci is launching Zanite Acquisition Corporation, which will focus on advanced air mobility, sustainable aviation and other emerging technologies.

We typically have around $30m to invest in equity in each new company. With leverage we can make that up to around $100m or $150m,” Ricci told Corporate Jet Investor. “There are private equity companies interested in several billion-dollar companies but there is a gap between what we do and what the large funds are doing. That is why we have filed for a SPAC.”

Bartok said operational managers with experience in their vertical of the industry, such as Ricci, also have trust and respect which is a factor for SPAC success.

Mad dash

Once a SPAC has listed it has two years to close an acquisition. “There’s currently a mad dash for those that have launched SPACs to find SPAC-worthy targets to merge with/acquire, which ultimately is likely to cause a scarcity of SPAC-worthy companies to acquire and at the same time, potentially driving up valuations in a non-rational way,” said Sigari.

Bartok agrees, stating that SPACs can get more desperate to find a deal towards the end of their 24-month period. This can mean they start proposing lower quality transactions to the market which could then be rejected.

There are several SPACs now looking into the aviation revolution, either through electric-powered vehicles, connectivity, freight-tech companies or space exploration. With deals expected soon. Or they could look at cannabis.

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