May 04, 2021

Inside the SPAC PIPE

By Brandon Mavleos, Sr. Director of Product Marketing

The PIPE, or private investment in public equity, is a critical step in the transformation of a blank check vehicle into an operating public company. Though PIPE offerings are hardly new to the capital markets, the recent rise in special purpose acquisition companies (SPACs) has brought these capital raises along for the ride.

Before the SPAC boom, public companies have pulled the PIPE lever to bring in funds from institutional investors for special projects, bridging a downturn, restructuring and other specific uses. The PIPE was seen as a way to get capital to companies too small, in too much trouble, or too unusual to avail themselves of more standard offering structures.

However, the PIPE and the SPAC have come into the spotlight together. One of the largest SPACs to date, Altimeter Growth Corp, raised a modest $400m in its blank check IPO last September. Now after announcing a plan to merge with Singapore-based ride hailing company Grab, it will hold the record as the largest SPAC ever at an anticipated $40bn equity valuation. Funding will come from a group of blue-chip investors in a $4bn PIPE - ten times the original capital raise.

The PIPE has become such an integral step in the SPAC merger roadmap, many targets approached by management teams scrutinize sponsor relationships with investors and track record of successful PIPEs. Now as the market grapples with several hundred empty shells in search of quality targets, each one of those will also need to hunt down private capital to seal the deal.

What Happens Next

The brisk SPAC momentum this year looks to be heading into the narrowing end of a bottleneck. Even those players with suitable targets in hand still need to pass through the PIPE.

All PIPEs can be structured in a custom manner according to the issuer’s needs, and lockup periods are one element to watch. The next few months may see PIPEs cross the finish line with more flexibility on lockup periods, shortening or disappearing altogether in order to sweeten the deal for reluctant investors. On the other hand, regulatory scrutiny could increase, as happened with recent SEC guidance on accounting treatment for SPAC warrants.

Expect intensifying competition for the finite number of institutional investors, large asset managers and even smaller boutique entities. Many players already hold SPAC investments and some have simply fallen victim to “market exhaustion” as SPACs continue to beat down their doors.

With that said, there are still heavy indications that SPACs are still here to stay. Even if regulatory challenges come into place, SPACs fill a unique market need for taking a company public – and with the SPAC comes the PIPE, which helps bridge the key financing gap.

The Right Technology to Retain Focus

For advisors and sponsors looking for institutional support in the PIPE, the role of technology is often underplayed. Speed is critical during this stage of the process; however, it shouldn’t mean taking short cuts. It’s easy to fall into the trap of manual spreadsheets and emails, but having a central technology tool to track everything, offers deal teams the transparency they need to make the right decisions. It will save you time and ensure all partners are marching to the same beat.

Finally, given the competitive nature of the PIPE environment, investors are not going to skimp on doing their due diligence. Leverage a VDR that can get you up and running quickly. It must be intuitive enough for investors to use immediately. A well formatted document index, for both the De-SPAC and PIPE enables the right level of visibility for the deal, and gives you more confidence that the right investors are in it for the long haul.  

If you need assistance with your next SPAC deal, including the PIPE & De-SPAC, reach out to a representative at Datasite. We can find a solution that will set you and your partners up for the best possible outcome. 

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