For Kantrowitz, planning for a successful acquisition by your SPAC begins even before the initial public offering.
"You should start thinking about what you're going to do in the business combination phase while you're still in the IPO phase," said Kantrowitz, "because what you do in the IPO phase will have a big impact on what you can do in the business combination phase.
"What you do at the front end has a big impact on what you do on the back end; every change you have to make on the back end of the deal only shows the weakness of the deal," he continued.
He also noted that one of the chief reasons that business combiations by SPACs fail to win shareholder approval is because of size. "If you look at the deals that have failed, they were often close to the amount in trust," he said.
Kantrowitz recommends that takeover targets be for at least 2 times to 3 times the amount the SPAC has in trust. However, he also cautioned investors to take the size of a SPAC's trust into account as it will certainly affect the ease with which it finds a deal.
"If you're a $1 billion SPAC looking at $2 billion to $3 billion targets, the competition that you face is very differnet from what you'll be facing if you have a $100 million SPAC, looking at $300 million targets," Kantrowitz said.
When the SPAC does find a deal, Kantrowitz said, it is vital that the deal makes sense for shareholders. "You'd better make sure that the first time is the right time, because there probably won't be another opportunity," he said. "The investors hired you to go out and find the best deal you could because he thought you were expert, so when you present a deal, you'd better put your best foot forward." - George White
