While SPAC transactions have long been considered a last resort way to go public, they are now thriving and represented about half of all IPO issuance so far in 2020. Today’s special-purpose acquisition company deals have been validated by numerous high-profile sponsors, established and successful private companies leveraging the structure to go public, and top-tier institutional investors and investment banks participating in these transactions.
Nevertheless, the SPAC structure is unique. From a communications perspective, there are important nuances companies should consider. In our experience, establishing a strong investor relations foundation and leveraging best-in-class investor communications from the start are critical competitive advantages for companies entering the public market through SPAC transactions.
Get ready to be a public company. Companies going public in a SPAC transaction find it especially challenging due to the compressed time frame relative to a traditional IPO. Keep in mind that the average length of time from signing a letter of intent (LOI) to announcing a business combination is just a few months.
Regardless of how a company goes public, management must understand what it means to be a public company and have the infrastructure, systems, and resources in place. That includes establishing a robust IR foundation that includes everything from creating public company policies and protocols to a state-of-the-art IR website for launch on listing day. When investors and the press ask you why you decided to go public via a SPAC, the best answer is: “We had always intended to go public and were public-company-ready when we made the decision.” That proof of concept should be supported by the quality of company communications and confident interaction with these audiences.
Build a detailed timeline and expect things to change along the way. A key benefit of a SPAC transaction is that it often allows companies to become public faster and with more certainty. That said, there are many parties involved in the process: the SPAC, the target company, two sets of bankers, two sets of lawyers. Sometimes these groups have competing agendas. There is a lot of work to get done and many unknowns, including market conditions, peer group performance, the timeline for the SEC’s review of the Form S-4, and the SPAC shareholder vote. Along the way, decisions must be made on the timing of critical activities such as institutional investor marketing, conference appearances, and analyst day. There can be tension around balancing the need to do things well with the need to do things quickly. It’s important to recognize that the stock price plays a key role in determining the outcome of the required shareholder vote. Since marketing supports the stock price, the timing and level of marketing activity may change along the way based on how the stock is trading.
Get familiar with the Wall Street audience. For executives who are engaging with investors and analysts, it’s critical to have a solid understanding of what these audiences care about the information they want, the kinds of questions they ask. Any management team that has not had firsthand experience working with Wall Street and the press should rely on investor relations for education, advice, and Q&A rehearsals. Formal media or spokesperson training can also be very helpful in preparing management teams to make the very best first impression.
Get the message right. Messaging delivered in an IPO of any type sets the tone for the long term and must be carefully crafted. Public company messaging shifts from communicating about the features and benefits of a product or service to the features and benefits of investing in the company — generating earnings and cash flow and building long-term value for all stakeholders.
Public company messaging shifts from communicating about the features and benefits of a product or service to the features and benefits of investing in the company.
Crafting a compelling investment thesis requires thorough competitive analysis and a thoughtful approach to telling the corporate story in a way that distinguishes your company from competing investments. Investor communications should address corporate purpose, market opportunity, strategy, growth drivers, value creation plans, operational and financial performance, capital allocation, human capital, and ESG. It’s important to present a balanced view of the upside as well as the risks and the plans for mitigating them. Also, remember that being prepared to deliver the investor presentation and reinforce messaging when fielding questions is as important as having a well-crafted and well-designed presentation.
Think carefully about forecasts. In a SPAC transaction, the target company typically provides long-term forecasts that are included in the investor presentation and Form S-4. Both documents are filed with the SEC and available to the public. Many high-growth companies going public through a SPAC transaction are providing detailed and often granular forecasts looking out several years. Ideally, these forecasts present the path to positive cash flow and demonstrate how the proceeds from the transaction will help the company achieve it.
While forecasts are helpful to investors and important in selling the deal, they must be carefully formulated. They have a long shelf life. The credibility of company leadership will be on the line if, at any point along the way, they are not met. While investors discount these forecasts to determine the price they’re willing to pay for the stock, we recommend that management factor in some margin for error, address underlying assumptions, and educate the Street on elements that are within and beyond its control.
Prepare well for PIPE investor meetings. Private investment in public equity (PIPE) transactions, which are completed after the letter of intent is signed and before the combination announcement, are a common and attractive feature of SPAC deals. They serve to (1) validate the target company’s valuation (2) provide additional capital at the time of the transaction to ensure that the target company is adequately capitalized to execute its growth strategy and (3) jumpstart the process of building a strong base of institutional investor support. Many top-tier, long-term investment managers such as Capital Group, Fidelity, Wellington, Franklin, Neuberger & Berman, and others are participating alongside hedge funds and smaller investors. Securing one or more noteworthy investors to participate in the PIPE transaction lends tremendous credibility to the transaction and should be a top objective.
Make the most of the business combination announcement. In a SPAC transaction, the business combination announcement is the first public disclosure about the transaction and is the debut moment (vs. listing day in a traditional IPO). It’s also the moment when an aggressive and sustained Wall Street and media marketing initiative to build broad-based awareness of the transaction begins in earnest. Companies need to be prepared with a (1) press release that introduces the target company, explains the transaction details, presents the reasons why the target company offers investors a compelling investment opportunity and is positioned to deliver growth and returns in the future, and names lead steer investors that participated in the PIPE transaction (2) public investor call to discuss the transaction and review the investor presentation in detail (3) strategic investor and analyst targeting plan and media strategy and (4) plan for communicating with employees, customers, partners, and others about the news. Announcement day is an action-packed day that is best managed with advance planning, a detailed timeline, and all-hands-on-deck.
Make Wall Street marketing a high priority. In a SPAC transaction, the issuer and their IR team play a far more prominent role in marketing than in a traditional IPO, in which IPO marketing is handled by the underwriters. To effectively build widespread Wall Street support, the IR team must have strong knowledge of the landscape and the ability to reach the right investors and analysts. Management must also be prepared to dedicate a significant amount of time and effort to meet with them. News announcements, industry conferences, and events, Wall Street conferences, and press interviews are all great vehicles. Companies that plan to leverage press and especially broadcast news must be sure to media-train executives with key messages and questions about the company, the transaction, and the SPAC structure.
Begin work on Form S-4 as soon as the LOI is signed. The Form S-4, filed with and approved by the SEC ahead of the transaction close, is important for a couple of reasons. First, many investors and analysts review it as part of their due diligence in making the decision to invest in or initiate coverage of the company. Second, it establishes a precedent for all future SEC filings. We recommend making the Form S-4 available as early as possible to support the marketing effort. At the same time, management has to make sure it’s carefully crafted, reflects well on the company, and effectively communicates the investment thesis. The Form S-4 requires a substantial commitment of time and effort as well as close collaboration among all parties involved in the deal. Given these factors, companies should start work on drafting the Form S-4 at the very beginning of the preparation process.
Prepare carefully for analyst day. Following the combination announcement, the target company should host an analyst day where management meets with a group of sell-side analysts who could potentially cover the stock. Investor relations takes the lead in (1) curating the invitation list with a focus on attracting participation from analysts at high-quality firms beyond those that were involved in the transaction and would do the best job covering the company and (2) preparing management for the event.
Key objectives of analyst day are to (1) ensure analysts gain a favorable impression of management and a high level of confidence in the team’s ability to execute the growth plan (2) tell the story the way management wants it told and (3) provide the information analysts need to build accurate financial models. Sell-side analysts are organized by sector, so they generally have a high level of industry knowledge and ask detailed questions. They have a keen ability to assess forecasts and will want a detailed understanding of your strategy to achieve the forecasts provided.
Prepare to hit the ground running as a public company. In a SPAC transaction, the path to listing day is arduous. On the heels of it, companies launch right into their initial year as a public company. This typically involves many “first,” starting with the first-ever earnings call. On the call, the Street will evaluate if the company is able to “walk the walk” and be a successful public company. A successful IR program requires careful planning and execution across the board, from quarterly earnings calls to Wall Street marketing and a commitment to building relationships with a new set of stakeholders.
Best-in-class communication can make or break a company’s transition to a public company and the ability to access capital to support growth. There are countless advantages to getting it right from the start. It takes effort, time, and attention, but the payback is worth it.
Moira Conlon is the founder and president of Financial Profiles, a strategic communications firm that creates value through effective communication. Agency expertise spans traditional and alternative IPOs including SPACs, spin-offs, reverse mergers, and direct listings. Please visit www.finprofiles.com for more information.