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Tina Pappas, a managing director of investment banking at Morgan Joseph & Co., led off the Wednesday afternoon session of Morgan Joseph's Inaugural SPAC conference with a review of how special purpose acquisition companies are faring in the current M&A market.
Pappas cited that M&A activity among SPACs has been strong, with 50 acquisitions completed by SPACs overall and with the average transaction value rising from $150 million to $350 million. However, as SPACs have become more mainstream, there have also been more problems, with 14 deals worth $2.2 billion failing to be completed since 2004. "The problem with some deals has been that some of these deals were negotiated before the market downturn," said Pappas. "The trend recently has been that some of these deals' values are renegotiated down." Another problem looming large for SPACs is that "many are currently trading below the cash they have in trust," Pappas commented. And when it comes to making acquisitions, she said that "the smaller deals have had the hardest time getting through the approval process; clearly the market is preferring sizable deals." "The small SPACs, those below $50 million, are acquiring companies at an average 3 times multiple, while the larger SPACs, those above $250 million, are getting multiples of 4.9 times on average," she continued. Among the chief things that most often trip SPACs up, Pappas named acquisitions that are roughly the same amount as the SPAC has in trust: "It's important to target acquisitions that not only are at a multiple to the SPAC's cash, but that also are purchased at a discount. Investors are really looking for the growth." "The moral of the story is that SPACs can be a very good acquisition vehicle for the right team and right acquisition," she said. - George White Categories Deal Video
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