SPACs, PIPEs, Blank Checks
Originally published 12-May-2021 on LinkedIn.
SPACs, PIPEs, Blank Checks…what does it all mean and why would a company go this route to become publicly traded? I’ll use the LSAQ - Science 37 SPAC merger to demonstrate.
First, in this case, the term SPAC is interchangeable with Blank Check. Sometimes there is a difference, not here. SPAC = “Special Purpose Acquisition Company”.
In 2019, LifeSci Acquisition II Corp (LSAQ) was privately formed as a SPAC to raise money to acquire a healthcare company, with target unknown. LSAQ went public in Nov 2020. Investors handed LSAQ $80m with broad discretion to find a suitable company to buy, thus the term “blank check”. As typical with SPACs, there was a deadline- a deal must be done by Nov 2022.
In short - a SPAC is a company given a blank check to acquire other companies within a certain timeframe.
LSAQ evaluated >70 companies and ultimately announced a deal to combine with Science 37, which will make Sc37 a publicly traded company on closing. The trick? The deal requires an extra $200m in capital so Sc37 can invest in more growth, and LSAQ only has $80m on hand.
To bridge the gap, LSAQ arranged new committed investment from private investors for that extra $200m, at $10/share for 20m shares. That “Private Investment” in “Public Equity” (the additional shares) is the “PIPE”. No funds actually change hands until right before LSAQ-Sc37 closes, and PIPE investors can bail if the deal doesn’t close by 6-Nov-2021.
In short - a SPAC uses a PIPE when its deal size exceeds its current capital.
LSAQ and Sc37 will spend the new few months arranging required approvals. If all goes to plan, on or before 6-Nov-2021 LSAQ will start trading instead as SCNE on NASDAQ, making Science 37 a publicly traded company.
There are so many more details not covered here- redemptions, lockups, earn-out shares, etc. Again these deals are highly complex and create a lot of confusion as to how they operate and why they are growing so popular.
So tomorrow I’ll cover- why go public this way?
Disclosure- I have no financial interest in any company mentioned in this post. This post reflects my thoughts and opinions on publicly available information, and is definitely not investment advice!