Newsletter Issue 2: August 2021
Inside this Issue:
Design Your Career is BACK!
Getting Up to Speed on SPACs
Letter from the Access Distributed team
Hi there,
Welcome to Issue 2 of the Access Distributed newsletter! We hope that you all are having a great summer and gearing up to head back to school soon!
We are excited to announce that...
Design Your Career is BACK!
Thursday, August 12 at 7 - 9:30pm ET
We invite you to join us at Design Your Career, an exhilarating virtual event to inspire, inform, and provide access to high potential careers. Registration is free and open to all undergrad students.
You'll hear from amazing speakers, including Howard Marks, the Founder of Oaktree Capital, meet students across the country, have the opportunity to win valuable prizes, and learn more about yourself and the professional opportunities that you can achieve.
Last year, hundreds of students across the country joined us and came away inspired, informed and ready to succeed in a high potential career.
This year, we have even more prizes to further your personal and professional development, an absolutely incredible lineup and some really special things planned.
We'll be stopping by your inbox a few times between now and August 12 to explain more about what to expect. You can register here - can't wait to see you soon!
Let us know if you have any questions.
All the best,
The Access Distributed Team
DEFINITION OF THE MONTH
PRIVATE EQUITY
Private Equity funds raise capital from investors to buy (full or partial) ownership stakes in a business. These funds aim to sell the stakes they purchase in the future to generate returns for their Investors.
Private Equity deals typically fall into one of three categories:
Venture Capital:typically take small, non-controlling stakes in young businesses with an exciting new business idea
Growth Equity:provide funding to help fuel additional growth for businesses with a more proven idea
Leveraged Buyout:purchase an entire Business with a combination of Debt and Equity
To learn more about Private Equity, check out thisdeep-dive articlefrom our partner,Finance|able
Getting Up To Speed on SPACs
In this section, we will dive into all things SPACs!
Written by AD Fellow Samuel Saldarriaga
The hottest topic on Wall Street right now is the trend of SPAC’s. We have seen everyone, from Wall Street billionaires to celebrities including Jay-Z and Shaquille O’Neal hop on this increasingly popular trend. But what exactly is a SPAC? Is it new? Why are SPAC’s suddenly so popular?
Let’s begin by defining a SPAC. A SPAC is a Special Purpose Acquisition Company; essentially a shell company created by investors (the SPAC “Sponsors”) who raise capital via an Initial Public Offering (“IPO”) with the sole purpose of making an acquisition. Once the capital is raised, the Sponsors seek out a private company acquisition target which they acquire, thus taking the private company public. SPACs are created with no target in mind, hence why they are called “blank check” companies.
https://realeconomy.rsmus.com/chart-of-the-day-a-record-year-for-spacs/
A graph showing the increasing recent popularity of SPACs, for reasons we explore below.
Why are SPAC’s So Popular Now?
A SPAC is legally viewed as a business but does not have any commercial operations following its IPO. The company’s only asset is the capital raised through the IPO and the SPAC’s sole purpose is to find an acquisition target. This deal type has been around since the early 1990s, but has recently gained popularity due to a variety of factors:
Public Investor Access to Early-Stage Businesses – A large number of companies acquired via SPACs are early-stage businesses that investors previously didn’t have access to because many Venture Capital-backed companies have opted to stay private for longer.
The Volatility of the Markets Due to COVID-19 – The market is incredibly volatile right now because of the pandemic, resulting in less certainty than usual. This market volatility has made SPAC’s more attractive because they can take a target company public in around 3-4 months, compared to the traditional IPO process of 6-9 months.
Private Equity & Venture Capital – the Private Equity and Venture Capital industries are supportive of the SPAC boom because it allows another exit strategy for portfolio companies.
The Benefits for Companies (and their Founders)
In addition to the market conditions that have enabled this trend to take off, the deal is incredibly attractive to companies for the following reasons:
Liquidity – creates the ability for founders and employees to monetize their ownership.
Control – SPACs allow founders to maintain a significant stake in their company.
Alternative to Venture Capital – Founders can now tap the public markets for funding far earlier than in the past, making them far less reliant on Venture Capital funding.
Certainty – Valuation is agreed upon by both parties; the target is certain of the value of their company, adding a sense security to the deal.
Timing Advantages – an IPO process can take 6-9 months from start to finish, whereas a SPAC merger can occur in just 3-4 months.
Risks with SPACs
As with any deal structure, there are many risks involved for SPAC investors:
Inability to Find an Acquisition – Investors run the risk of the SPAC sponsors not finding a deal during the typical two year acquisition period.
Founder Share Misalignment – Because SPACs Sponsors are only compensated if they complete an acquisition, their incentive is not to find the perfect deal but rather to find any deal that allows them to receive compensation.
Typical SPAC Process Steps
While all SPACs are somewhat unique, they tend to follow a few steps which we have outlined below:
SPAC IPO –The goal of a SPAC is to raise capital, doing so by raising shares (and simultaneously issuing warrants to each shareholder) as well as Founder Shares to the Sponsors.
Here are the key steps in the IPO process:
Raise Capital Through an IPO: Capital is raised from public shareholders, typically at $10 per share, which is then put into a trust account to be used when the company makes an acquisition.
Warrants:
IPO Investor Warrants: Investors in the IPO are typically given warrants, which allow them to buy additional shares at $11.50 per share.
Sponsor Warrants: The SPAC Sponsors typically provide funding for a small percentage of the total SPAC IPO buy buying Warrants, which are also priced at $11.50 per share.
Founder Shares: The SPAC Sponsors pay a nominal sum, usually about $25K, which gives them the right to 20% ownership of the SPAC, subject to 1-year lock-ups following the successful completion of a merger with an acquisition target.
Search Period – Following the capital raise, the Sponsor looks for a deal to complete. If no deal is completed within 2 years of the IPO, the initial investors typically receive their pro-rata investment that was initially contributed to the trust account at the time of the SPAC IPO offering.
“De-SPAC” Process – If the SPAC Sponsors find a target, then they begin what is called the “De-SPAC” process. To complete this process, they must announce the deal, receive approval from investors, and complete the merger. When the merger is complete, the ticker changes from the SPAC ticker to a ticker reflecting the acquired Company’s name. Through this process, the previously private target company goes public through the merger with the SPAC.
RECS, RECS, RECS
What we are reading, who we are following, what we are listening to, & more!
Newsletters:
The Broadsheet, Fortune’s newsletter for and about the world’s most powerful women
Podcasts:
The Knowledge Project with Shane Parrish and Farnam Streety
People to Follow:
Taylor Lorenz, American culture and technology reporter for NYTimes
Books:
Dare to Lead by Brene Brown
Check out all our past newsletters here!
