When the investment story of 2020 is written, it will be a thick volume – a global pandemic, an uncanny rebound in stocks and aggressive interventions by the Fed. But there will also be a chapter on the return of the Special Purpose Acquisition Company (SPAC), a deal structure last seen about a decade ago that is enjoying new popularity.
More than $30 billion has been raised in SPAC offerings so far this year, with more expected in the fourth quarter. Several factors are driving the growth – an abundance of highly valued private companies, investors hungry for returns in a world of low interest rates and dissatisfaction with the traditional IPO process.
But while a SPAC offers potential benefits for private companies that want access to the public market, it also carries significant communication challenges.
Multiple communication challenges
Once a SPAC is formed and sells shares to the public in an IPO, it goes on the hunt for a private company to acquire. After it finds a target and negotiates the terms, it must get shareholder approval to complete the deal. In each step of the process, communication plays a vital role.
This can be a daunting process for a private company accustomed to dealing with just a few investors in quiet boardrooms outside of the public eye. For companies considering a SPAC, communication should be a part of the planning from the outset. To use an election analogy (it is that time of year after all), CEOs will need to hit the campaign trail, shake a lot of (virtual) hands and get out the vote on election day.
Key issues to consider
In our experience working with clients on SPACs, we’ve found several important areas should be addressed early on. Private companies that are considering going public under this structure should consider:
- Do we have a strong investor message?
Most CEOs are pretty good at communicating with customers and employees. They can discuss product features, market dynamics and how cool the technology is. Investors need a different set of messages that focus on the company’s strategy, competitive strengths and financial outlook. Making this pivot is critical for a successful transition from private to public ownership.
- Are our executives ready for prime time?
Almost immediately, the CEO and other members of the management will need to make a convincing case for the company in front of demanding investors on earnings calls, investor days and investment conferences. Their personal characteristics – presence, speaking style, vocal clarity – will be as influential as the content of what they say.
- Can we manage a large set of investors?
The investor base is likely to be fluid after the SPAC acquisition is completed, and there could be a substantial number of individual investors in addition to institutional asset managers. A solid investor relations capability should be ready on day one. Companies need to be prepared to field inquiries from a very diverse group of investors – and articulate a message that attracts the long-term holders they want.
- How does our corporate governance stack up?
Investors, analysts and proxy advisors will give careful scrutiny to the company’s corporate governance practices and assess them against peers. Companies should be prepared to discuss director qualifications, executive compensation policies, ESG initiatives and other issues.
- Does our brand need to be refreshed?
Going public can also be an opportunity to re-articulate the company’s brand position and naming conventions. Management should assess what the brand will stand for to key stakeholders (investors, employees, customers, vendors), as well as how the name will be used in many new settings once the company is public. It’s important to have a plan for its use to avoid confusion or ad-hoc approaches.
SPACs can be an attractive route for going public, and effective communication can help companies make the transition successfully. Starting early in the process is the best advice.