Actionable Ideas for Companies and Sponsors
“SPACtivism” – Activism at de-SPAC’d Companies Gaining Momentum
Companies that entered the public markets via a de-SPAC transaction and now trade at depressed valuations could face a new wave of shareholder activism. To cite just one example, prominent activist fund Third Point recently called on Cano Health to sell itself just nine months after it went public via a de-SPAC before ultimately trading down.
In some cases, these companies may have less experienced Board and management teams who are still learning how to run a public company and best practices to prepare for the risk of shareholder activism. It is a circumstance experienced activist investors could use to their advantage.
In addition, there are fewer shareholder proponents or “true believers” in companies that have gone public via SPAC as compared to those that have gone public via a regular IPO. Traditionally IPO’d companies enjoy a honeymoon period where mainstream institutional investors make a choice whether to invest in a company and its management team following a lengthy roadshow and significant due diligence undertaken by the underwriters.
However, most de-SPAC’d companies do have strong structural defenses such as a classified board, the ability to control the shareholder vote calendar, and in some cases, dual classes of stock with unequal voting rights. Insiders typically hold significant stakes paired with Board seats, at least early on. As such, it may be difficult, but not impossible, for an activist to enforce any real change as long as these defenses remain in place.
Sponsor lockups typically expire after one year, so the question remains as to who may look to buy the shares the sponsors and insiders held through the SPAC period. One would imagine that activists, who are value investors on steroids, will opportunistically establish positions at de-SPAC’d companies where valuations are depressed and current shareholders may be receptive to change.