Marketing a SPAC: getting the communications strategy right
By Sandra Novakov, Head of Investor Relations
As the UK market prepares for changes heralding a more attractive environment for SPACs, understanding the nuanced differences in communications approach versus a traditional IPO is critical.
In 2020, IPO transactions by special purpose acquisition companies, or SPACs, reached a record 247, raising total gross proceeds of approximately $75 billion, or 48% of the overall U.S. IPO market by value. (Deal Point Data)
With the UK Financial Conduct Authority (FCA) expected to bring the UK regulatory regime onto a similar footing to those of competing financial centres in 2021, UK capital market participants are no doubt hoping for a slice of the frenzied action witnessed in other markets, and some impetus to listing activity.
Potential SPAC sponsors in the UK, as well as companies looking to go public via this route, should note that communicating with stakeholders, including investors and the media, through a SPAC transaction requires a slightly different approach to marketing a traditional IPO. Given scepticism from some regarding the quality of SPAC transactions, getting the communications strategy right from the outset is critical.
Proactive engagement through all phases of the transaction
One of the key features of a SPAC transaction is the ability to communicate proactively with the market throughout the entire process. Given that the success of the initial listing rests largely on the credibility of SPAC sponsors, there is merit in starting with profile raising early on and positioning the sponsors as figures of authority in their sector.
Gaining exposure to a wide range of investors, intermediaries and industry players is also important for building relationships and driving deal flow while the sponsors search for the appropriate target. Through regular engagement with sell-side analysts that cover the sector and attendance at selected broker-hosted conferences, sponsors can build trust and credibility that will be much needed further down the track as they educate investors on the merits of the selected target, often a relatively unknown private company, assuring them that it is an attractive investment opportunity.
Unlike in traditional IPO transactions, the roadshow period itself, which follows the business combination announcement, is also a dynamic period in a SPAC timeline. Given that trading in SPACs continues during this phase (which is soon expected to also be the case in the UK for SPACs that meet FCA criteria), a reactive communications approach is rarely an option. In order to maintain positive market sentiment and retain as many of the early investors in the SPAC as possible, having a pipeline of corporate news announcements ready can provide a tactical advantage during this period.
Crafting the message and optimising delivery
The business combination announcement is a key milestone in any SPAC transaction. This is when the detailed investment case is presented to the capital markets for the first time. With the operating company coming into the transaction process at a later stage than in a traditional IPO, drafting this can be particularly challenging, but should also be viewed as an opportunity. Ensuring that compelling messages are supported by relevant proof points and articulated clearly across regulatory filings and the investor presentation is vital. During this time, the company will also need to build an IR website, often within the short timeframe of a few weeks. This is where a dedicated team of trusted advisors can make a real difference.
A key element of these communication materials, from an investor’s perspective, is the outlook. Under regulatory regimes outside the UK, SPAC directors are typically absolved from liability for their projections and forecasts provided to the market. As a result, bullish and highly granular medium-term forecasts are common. Despite this flexibility, resisting the temptation to overpromise, however, is essential to securing a healthy aftermarket following completion of the transaction. Protecting the reputation of SPAC sponsors is equally important, given that they often have plans to return to the market with subsequent SPAC deals.
Despite the compressed timeline and intense workstreams running concurrently, extensive rehearsals ahead of investor meetings are also vital to ensure the management of the target company is ready to face investors, and that SPAC sponsors come across as knowledgeable and consistent in their answers to questions, to demonstrate that they have done extensive due diligence and know what they are buying.
Hitting the ground running as a listed entity
Once the transaction has been approved by shareholders and the combined entity becomes public, the company should be fully ready for life as a listed entity. Given that management of the operating company typically only has three to five months from signing a letter of intent to make these preparations, this process can be more challenging for SPAC listings than for companies listing via the traditional IPO route. It is, however, in the interest of both SPAC sponsors and the operating company that the internal infrastructure and skillsets needed to fulfil reporting obligations and implement a proactive investor relations programme are put in place in a timely manner.
Companies that go public via a SPAC not only have a more concentrated shareholder base than traditional IPO listings, but are often faced with a complete absence of sell-side analyst coverage on completion of the transaction. This reinforces the need for a comprehensive IR strategy in order to develop trading liquidity and visibility for the stock. What is more, as the SPAC sponsors take a back seat from ongoing investor engagement, it is imperative that the operating management and their IR team have the skills and confidence to deliver on these objectives.