Assessing a Key Quality of Successful SPACs

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The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.

Special purpose acquisition companies (SPACs) have quickly gained traction among investors that are looking to gain low-cost exposure to up-and-coming businesses and the opportunity to invest alongside experienced SPAC sponsor teams. With approximately $64 billion raised in funds via SPACs in 2020, SPACs might just be the fastest growing asset class in American equity markets.

There are several advantages to going public via a SPAC, as it allows companies to take advantage of faster execution, upfront price discovery, and the ability to partner with experienced SPAC sponsor teams through and post-transaction. There’s also the fact that growing businesses won’t have to pay the massive underwriting fees associated with the traditional IPO process.

It’s clear that blank check companies are here to stay, which is why investors should start thinking about what really separates the best quality SPACs from those that never take off. It is critical for investors to take the time to understand the risks associated with investing in SPACs, including what characteristics tend to indicate a SPAC sponsor team will find and successfully merge with an attractive target.

There are several qualities that the majority of successful SPACs have in common, but perhaps the one that stands out the most is that operator-led SPACs tend to outperform the broader SPAC cohort. Essentially, a SPAC whose leadership has former C-Suite operating experience versus purely financial or investing experience has a much better chance of delivering strong returns versus a non operator-led SPAC.

A fascinating September 2020 study conducted by McKinsey & Co. found that for 36 SPACs from 2015 to 2019 of at least $200 million with at least 12 months of publicly available trading data — 1 year after merging — the operator-led SPACs outperformed both other SPACs by roughly 40% and their sectors by about 10%. 

This makes sense for several reasons. Since operator-led SPACs have executives with specific expertise in certain areas and industries, they are able to more effectively diligence targets within their range of expertise. Operators also tend to take leadership roles after these deals are completed, which in turn leverages their unique expertise for the long term benefit of the target combination. 

The bottom line is that if you are going to invest in a blank check company, you are essentially betting on the shell company’s ability to identify a suitable target that can deliver growth. It makes sense that investors should seek out only the best and brightest operators for adding shares of a pre-merger SPAC.

One strong example of an operator-led SPAC for investors to look into is Omnichannel Acquisition Corp OCA, a blank check acquisition vehicle seeking a $1 billion to $2.5 billion consumer sector acquisition. We know how successful direct-to-consumer e-commerce, consumer healthcare and consumer services businesses have been lately, and this SPAC team brings significant relevant operating expertise in the area to their target combination search. 

This SPAC is led by Chairman and CEO Matt Higgins, whose deep operating experience spans multiple industries over his more than 25-year career. After starting his career in public services, Mr. Higgins spent 15 years affiliated with National Football League teams serving as Executive Vice President of Business Operations for the New York Jets and Vice Chair of the Miami Dolphins before co-founding RSE Ventures, an incubator and investment firm that he co-founded in 2012 to pursue opportunities in the sports, media, entertainment, food, and technology sectors. As CEO of RSE Ventures, Mr. Higgins has incubated numerous businesses and successfully backed many challenger brands from inception, including RESY, an OpenTable competitor that American Express acquired in 2019; Drone Racing League, the world’s premier drone racing circuit; and the International Champions Cup, the largest privately-owned soccer tournament featuring Europe’s top clubs.

Mr. Higgins has a deep lens into consumer trends through his role as an Executive Fellow at the Harvard Business School, where he co-teaches a course on emerging consumer trends, Moving Beyond DTC, and through RSE’s partnership with entrepreneur, social media expert, and internet personality Gary Vaynerchuk in the leading digital-first marketing firm VaynerMedia. 

It’s also worth noting that Omnichannel’s board of directors and advisors includes 10 consumer sector business founders. The team includes former PepsiCo America CEO Al Carey, founder of Bobbi Brown Cosmetics Bobbi Brown, and co-founder of Pattern Brands Emmett Shine. 

We explored the operator premium in an interview with Matt Higgins: “Operator-led SPACs tend to focus on a narrow thesis, they tend to stick with what they know… [and their] bias is to solve problems. Operator-led SPACs tend to stay way more involved in the governance of the target long term”.

The OCA team has broad consumer investing and operating experience and is certainly a SPAC worth monitoring going forward. Make sure to take due diligence seriously with any SPAC investment and check out Omnichannel’s acquisition criteria for further details. 

The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.