Sponsors are not easing up in their efforts to sell investors on special purpose acquisition companies, a form of capital structure that arrived in Canada two-and-a-half years back after a long life in the U.S.

Tuesday, a newcomer to that world, Canaccord Genuity Acquisition Corp. announced plans to raise $30 million from the public — an amount that’s considerably smaller than what its predecessors raised.

And as befitting a new entrant, Canaccord, which plans to seek out a growth company with an enterprise value of between $50 million and $250 million for its qualifying acquisition, introduced a nifty piece of innovation.


Here the plan is to seek regulatory approval to allow the units (with each unit consisting of a common share plus a full warrant) to remain as one piece of paper.

In this way the issuer is breaking with tradition where the units split into shares and warrants. That tradition has come with a big negative: the two groups of shareholders have different objectives and that makes it very difficult to know how much capital the issuer will have on hand when an acquisition is announced. Canaccord’s innovation may mean that retail investors rather than institutions will be the main buyers.

On its transaction, investors are being offered restricted voting units — a full share and a full warrant. (On some other transactions, investors were offered half a warrant. A full warrant can allow issuers to raise more capital. The warrants, which have a five-year term, are exercisable at $3.45 — a standard 15 per cent above the issue price of the units. The other big difference with this offering is that investors are only required to ante up $3 per unit — $7 below the norm. It seems the issuer had two choices: 3 million shares at $10 or 10 million shares at $3. In the interests of greater liquidity it decided to issue more shares at a lower price.

If and when the financing closes, the SPAC’s management team will have two years to complete an acquisition.

Mixed success

SPACs have enjoyed mixed success in Canada in part because they come with a very investor-friendly structure. The buyers have many choices: once a qualifying transaction is proposed they vote on whether to proceed; they are also given a choice on whether to remain an investor, or demand the return of their investment but remain an owner through their interest in the warrants.

Of the original six filings, two, Dundee and INFOR were unable to complete a transaction. The other four, Acasta, Alingvest, Kew Media and Gibraltar, all got over the line. But in completing the qualifying transaction, some faced large redemption requests, which required large follow-up rounds of equity raises. To preclude against that possibility, some raised equity just prior to announcing their qualifying transactions.

For investors, the ride has also been mixed: as of the close of business Tuesday only one (Kew Media) was trading above $10. Alingvest, which morphed into Trilogy International Partners, was trading at $8.36; Acasta, which made three acquisitions, was trading at $7.75; while Gibraltar growth, which became LXR, closed at $8.80.

Canaccord’s announcement comes a month after Alignvest 11 Acquisition closed a $402.5 million initial public offering. If you include the $113 million contributed through a forward agreement, it makes this SPAC the country’s largest. Manulife Asset Management and Polar Asset Management, each own more than 10 per cent.

Tuesday, the units issued by Alignvest 11 split into separately-traded shares and warrant.

Financial Post