SPACs are turning to costly new tactics to keep investors from jumping ship as market confidence wanes in the once red-hot alternative to IPOs.
In money terms, almost $9.5 million worth of mergers have been canned this year, according to Dealogic data. The approaches being employed by SPACs include offering bonus stock to investors who choose not to redeem shares. “With a high number of SPACs still seeking targets and the skepticism due to the pullback in the market, it has become harder to persuade target companies to want to engage with SPACs and have the related management distraction,” said Atif Azher, partner at law firm Simpson Thacher & Bartlett LLP.
“The best way to maximize participation by SPAC shareholders is to bring to market a highly profitable company with exciting growth prospects at an attractive valuation. The bonus share reward is just the icing on the cake,” Cohn Robbins co-chairmen Gary D. Cohn and Clifton S. Robbins told Reuters. Some of the fundraising is also done via over-the-counter equity derivative agreements. If investors who buy the shares choose not to redeem them before merger completion, the SPAC agrees to buy back those shares from them at a later date after the merger is safely in the bag.Some investment firms have also stepped in recent months to backstop deals.
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