In an earlier post this week, I mentioned the dilution argument for SPAC depends on a company's trajectory as SPACs become increasingly competitive. As suggested by Sitetracker CEO Giuseppe Incitti on Twitter, let's take a look at the median SPAC structure for energy and industrial companies.
New Capital Ownership
For those of you new to the SPAC structure, there are two primary sources of capital. The SPAC itself raises money in an IPO roadshow based on the quality of the SPAC team. A SPAC focused on energy transition and sustainability usually raises between $250M-350M, but that figure ranges from $100M to $800M.
After the SPAC IPO's it selects a "target" for acquisition and another roadshow begins for the PIPE. The PIPE is similar in size to the SPAC, meaning the total new capital into the SPAC's target for acquisition to $400-$600M in most cases.
I'll save this for another blog post, but it should be noted the terms of the acquisition and PIPE can vary. Companies that are sought after by multiple SPACs get better terms and competitive PIPEs also command more favorable terms.
After the entire process is done the new investors (SPAC + PIPE) own 30-35% of a company on average and the business receives $500-$750M in new capital.
Sponsor Warrants and Founder Shares
Every SPAC has a structure that allows the sponsor of the SPAC to collect warrants on the newly combined company.
Since the SPAC process has become more competitive over the last 24 months, these warrants now average between 1/5 share per warrant and 1/3 share per warrant.
The median ownership of these warrants post-merger is 4% but ranges from 1-6%.
Existing Shareholders and Acquired Company Founders
Finally, we get to the easiest part of a SPAC transition - the ownership of existing shareholders and founders.
The median SPAC valuation for companies focused on the energy transition is $1.7B and existing shareholders own a median of 62.4%
Again, something I'll touch on in a future blog post. The terms for the founders themselves can vary. It's not uncommon for founders to get favorable terms such as super-voting rights.
The Final Cap Table
All of this leaves us with a cap table that looks similar this on the median, give or take a few percentage points:
The terms used to calculate this particular cap table were:
- Pre-money valuation: $1.2B
- Total capital raised: $500M ($250 for SPAC and PIPE each)
- Total cash to business: $471 (service providers get $29M)
- Post-money valuation: ~$1.67B
Is this structure overly dilutive? That depends on the merger agreement itself and the structure of previous funding events. However, 65% of a business armed with $500M in cash and the opportunity to take pole position in new sectors is a compelling proposition that companies are increasingly lining up to accept.