Regulatory risks for special-purpose acquisition companies (SPACs) are growing. Shareholder lawsuits against SPACs are proliferating. And the post-deal performance of some SPACs is unspectacular.

Still, SPAC deals move toward completion. Sometimes, though, the merger part of the transaction requires a little extra financing.

For example, KORE Wireless, a provider of internet of things (IoT) solutions and connectivity-as-a-service, will complete its merger with a SPAC this quarter. The sponsor is Cerberus Telecom Acquisition Corp (CTAC), led by Tim Donahue, the former executive chairman of Sprint Nextel.

CFO Puneet Pamnani

“Tim Donahue is an industry legend. It was important to have somebody like that attached to the deal,” says Puneet Pamnani, KORE Wireless’ CFO. “We wanted something more than just money. We wanted somebody with a good name and a great team … bringing domain expertise to the table.”

KORE is further along financially than a lot of SPAC targets. Founded in 2002, the company has 3,600 customers worldwide. For the quarter ended June 30, it had $55 million in revenue and adjusted EBITDA of $16 million.

The machine-to-machine cellular connectivity from KORE serves different verticals, with health care the largest sector. For example, during the height of the pandemic, hospitals used KORE solutions for remote glucose monitoring of COVID-infected diabetic patients.

Going public on the New York Stock Exchange will help build KORE’s brand, says Pamnani, and provide other benefits, like access to additional liquidity and capital and a public currency for acquisitions.

In addition, with the founders rolling in 100% of their equity, they will have skin in the game, Pamnani says. Instead of illiquid, hard-to-value private company shares, they get public company stock.

The SPAC transaction, announced back in March, is expected to provide about $484 million of gross cash proceeds, assuming no redemptions by CTAC’s shareholders. It includes a $225 million (upsized from $150 million) PIPE investment by a subsidiary of Koch Industries and funds managed by BlackRock. The fully diluted pro-forma implied enterprise value of the combined company is about $1.014 billion at the $10.00 per share PIPE price.

PIPE’s usually provide a good portion of the target’s acquisition price and help build post-merger operating cash.  (The initial SPAC raise rarely covers all of the merger price.)

But in late July, KORE and CTAC decided to add a buffer. They set up a “redemption backstop convertible bond” to bolster the deal’s financing and backstop any possible redemptions from the SPAC’s trust account. The backstop may be used to help satisfy “the minimum cash condition at the closing of the merger with CTAC,” KORE stated in a press release.

The backstop agreement from Fortress Credit lets KORE/CTAC borrow up to $120 million. Any notes issued as part of the facility will bear a 5.5% interest rate and a maturity of seven years. Upon the merger’s close, the notes are convertible into shares of the public company’s common stock at $12.50 per share.

“When used correctly, with the appropriate diligence, I think a SPAC is a tremendous weapon,” says Pamnani. “It can bring you to a public listing in 9 or 10 months as opposed to 18 to 24 months.”

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