April 22, 2021

SPACs are Coming to Canada - Mergermarket Canadian M&A Forum

By Rachel Stone in Charlottesville, Virginia

Initial public offerings of special purpose acquisition companies on Canada’s stock exchanges, which have so far paled in comparison to the frenetic pace of US SPAC issuance, will likely increase this year, industry experts said during Mergermarket’s Canadian M&A Forum.

Senia Rapisarda, managing director at the private equity firm HarbourVest Partners, said she is expecting a “significant increase” in the number of SPAC IPOs, though not to the same level as seen in the US.

Just two SPACs were formed in Canada last year, according to data from Mergermarket affiliate DealogicCeres Acquisition [NEO:CERE.U] [OTCMKTS:CERAF], which listed in March 2020, announced an agreement to acquire Atlanta-based cannabis company Parallel this February. Nextpoint Acquisition [TSX:NAC.U] [OTCMKTS:NACQF], which listed in August 2020, announced an agreement to acquire Virginia Beach, Virginia-based tax preparation service provider Liberty Tax and Anaheim, California-based consumer and small business lender LoanMe, also in February.

Like Ceres Acquisition, many recent Canadian blank-check companies have tended to focus on the cannabis industry, according to Salil Ratnaparkhe, associate vice president of corporate development at Sun Life Financial [TSX:SLF], who said he is interested in seeing what the next generation of targets might be.

Mercer Park Brand Acquisition [NEO:BRND], which listed in May 2019, announced earlier this month an agreement to acquire California-based cannabis company Glass House Group for USD 567m. British Columbia-based Choice Consolidation [NEO:CDXX.UN.U], which listed in February, is looking for a US cannabis business at an enterprise value of USD 600m-USD 1bn, CEO Joe Caltabiano told this service this week.

Meanwhile, HarbourVest’s Rapisarda said many Canadian companies looking to go public are weighing whether to list in the US or Canada and whether to do so via a SPAC merger. The economics of a SPAC merger can be “interesting,” and the speed of a transaction can be “particularly appealing,” she said.

Sean Dainty, vice president of Canadian sales at Datasite, highlighted the backlog of available private investment in public equity (PIPE) deals — which is a popular way of bolstering a SPAC merger with additional private capital — as a potential roadblock moving forward.

Only four US SPACs have found Canada-based targets, according to Dealogic data: Northern Genesis Acquisition’s [NYSE:NGA] merger with zero-emission vehicle manufacturer The Lion Electric Company last November; Peridot Acquisition’s [NYSE:PDAC] bid for lithium-ion battery resource recovery company Li-Cycle in February; Sustainable Opportunities Acquisition’s [NYSE:SOAC] purchase of lower-impact battery metals developer DeepGreen Metals in March; and Research Alliance I’s [NASDAQ:RACA] deal with biopharmaceutical company POINT Biopharma also in March.

SPACs have surged in the US in the last 12-plus months, and the first three months of the year already outpaced record issuances and business combinations seen in 2020, according to Dealogic data.

The craze has yet to hit its northern neighbor. While issuance is expected to increase, Canada is unlikely to see celebrities or basketball players creating their own blank-check companies, said Jeff Swinoga, co-leader of national mining and metals at EY Canada.

Given the fragmentation in areas like electric vehicle batteries and critical metals, consolidation could potentially come from SPAC roll-up mergers, Swinoga said. He expects an increase in SPACs in Canada to be “moderate,” as did a majority of participants who voted in an audience poll during the webinar.

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