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3 reasons companies are still doing SPAC mergers

June 2, 2022, 12:36 PM UTC

Let’s take a brief stroll back to Aug. 2021, shall we?

Every day, you started your morning as you usually do—by opening up the Term Sheet newsletter. Wow! That IPO and SPAC section is really long. I remember those months intimately. First, it wasn’t that long ago. Second, I was starting each day with a slew of S-1 filings. There were a lot of them!

It’s no secret that the 2021 IPO party—a DJ’d event that had included an infinity pool, unicorn floaties, and shrimp ceviche hors d’oeuvres—ended when the markets tanked. It’s been a bit more complicated with SPACs.

The SPAC section of this newsletter, while oftly sleepy compared to last year, is still alive and well. Today you’ll see below that Freightos, a Barcelona and Jerusalem-based online freight shipping marketplace, agreed to go public via SPAC merger. Earlier this week, it was ECARX Holdings, a Shanghai-based mobility tech company. On May 19, there were two SPAC deals: electric aviation and air travel company Surf Air Mobility and electric scooter and bike-sharing app Marti. Before that, there was Appreciate, a Minnetonka, Minn.-based single family rental marketplace and management platform, and Dragonfly Energy, a Reno, Nev.-based lithium-ion battery manufacturer. You get the picture.

At the same time, plenty of deals are being delayed or falling apart. Yesterday, Forbes and SeatGeek called quits on their mergers. Blade Therapeutics recently postponed its special meeting.

So here’s something that’s been puzzling me: When most companies are deciding to stay private longer, startups are terminating their merger plans, and regulators are proposing new regulation to crack down on SPAC disclosure requirements, why are any companies still heading down this road?

It’s a question I posed to Matt Kennedy, senior IPO market strategist at Renaissance Capital, who is usually able to field my going-public questions.

Here’s some of what’s at play:

  • There’s a natural delay in the SPAC market. A lot of these SPAC deals take months to come to an agreement, then five or six months to go from announcement to completion. When de-SPACed companies started performing poorly on the public markets, that was only the first line in the cog. First, the returns go sour. Then redemption rates start to go up, then deals are terminated, then the SPAC entities are liquidated and sponsors face millions in fees. “It starts with bad returns, but it takes a while for that to work through the system,” Kennedy says, adding: “The deal announcements that were made in May have been in the works for several months.”
  • Capital may not be the main driver to going public. SPAC mergers really aren’t generating much capital for companies right now, because redemption rates are soaring (If you need a refresher on this, read this Term Sheet edition). “If you’re announcing a deal in this market, you have to be aware of the fact that you might not get much capital,” Kennedy says. But there are still other reasons you’d want to go public: i.e. pre-existing investors and stakeholders or executives want an exit, or companies are taking a more long-term view and want to go ahead and be a public company so they can eventually take advantage of capital markets.
  • Boutique investment banks are still ready to do deals. For years, big investment banks avoided the niche SPAC market, according to Kennedy. It was largely boutique investment banks playing in this space—that is, until SPACs became too popular to avoid during the pandemic. But even as players like Goldman Sachs pull back, smaller players are still picking up the slack, Kennedy says. “We did see a SPAC boom in 2007—nothing like we saw in 2021—but after that dried up, we did see a few dozen companies list via SPAC. I think that’s going to probably happen again.”

Whatever way you look at it, we probably won’t see another year like 2021—when there were more than 200 de-SPAC transactions in the U.S., per White & Case data. Kennedy calls SPACs the “perfect vehicle for the moment.” We had a  highly speculative bull market paired with companies that could project revenue growth of zero to a billion in merely a few years. “That was kind of exactly what investors wanted to see: High Growth, high potential technologies, like space tech or autonomous vehicles,” Kennedy says.

But, as retail investors pull back, and the bull market ends, that moment is over—particularly as the SEC raises its fist at those projections. So expect more SPACs to stumble out of the gate—but hold the shrimp ceviche.

More snipping… Gemini, the crypto exchange and custodian run by the Winklevoss twins, is reportedly cutting 10% of staff as crypto trading slows. “This is where we are now, in the contraction phase that is settling into a period of stasis—what our industry refers to as ‘crypto winter,’” the brothers wrote in a memo seen by Bloomberg

See you tomorrow,

Jessica Mathews
Twitter: @jessicakmathews
Email: jessica.mathews@fortune.com
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Jackson Fordyce curated the deals section of today’s newsletter.

VENTURE DEALS

- Ultima Genomics, a Newark, Calif.-based genome sequencing platform, raised $600 million in a funding round from investors including General Atlantic, Andreessen Horowitz, D1 Capital, Khosla Ventures, Lightspeed, Marius Nacht, aMoon, Playground Global, and Founders Fund.

- Coralogix, a San Francisco-based streaming analytics platform, raised $142 million in Series D funding. Advent International and Brighton Park Capital co-led the round and were joined by investors including Revaia Ventures, Greenfield Partners, Red Dot Capital Partners, O.G. Tech, StageOne Ventures, Joule Capital Partners, and Maor Investments

- MoEngage, a San Francisco-based customer engagement platform, raised $77 million in Series E funding. Goldman Sachs and B Capital led the round and were joined by investors including Steadview Capital, Multiples Alternate Asset Management, Eight Roads Ventures, and Matrix Partners India

- JupiterOne, a Morrisville, N.C.-based cyber asset attack surface management platform provider, raised $70 million in Series C funding. Tribe Capital led the round and was joined by investors including Alpha Square Group, Sapphire, Bain Capital Ventures and others. 

- ODILO, a Madrid-based educational content curation platform, raised €60 million ($63.95 million) in a funding round. Bregal Milestone led the round and was joined by investors including Swanlaab Venture Factory and CDTI

- MycoMedica Life Sciences, a Shelton, Wash.-based fungi-based therapeutic drug developer for psychiatric and neurological disorders, raised $60 million in funding. Obvious Ventures led the round and was joined by investors including True Ventures and Kittyhawk Ventures

- FarmWise, a San Francisco-based farm automation startup, raised $45 million in Series B funding. Fall Line Capital and Middleland Capital led the round and were joined by investors including GV, Taylor Farms, Calibrate Ventures, Playground Global, and the venture arm of Wilbur Ellis

- WIN Reality, an Austin-based virtual reality training platform for athletes, raised $45 million in funding from Spectrum Equity

- Vade, a Hem, France-based email cybersecurity company, raised €28 million ($30 million) in funding led by Tikehau Ace Capital, Bpifrance, and Auriga

- Penny AI, a Vancouver-based sales enablement platform, raised $27 million in Series B funding. PSG led the round and was joined by investors including Acronym Venture Capital and ScaleUP Ventures

- Coterie, a New York-based babycare brand, raised $23.8 million in Series A funding. Align Ventures’ Ben Bryce led the round and was joined by investors including Beliade, Willow Growth, RiverPark Ventures, and others. 

- Colorfix, a Norwich, U.K.-based organic fabric dyeing company, raised €18 ($19.16 million) in Series B funding. H&M Group led the round and was joined by investors including Sagana, Cambridge Enterprise, Bombyx Growth Fund, PDS Ventures, and Regeneration.VC.

- Felt, an Oakland-based collaborative mapping software platform, raised $15 million in Series A funding. Footwork led the round and was joined by investors including Bain Capital Ventures, Moxxie Ventures, and Designer Fund

- Vibenomics, a Fisher, Ind.-based retail audio advertising provider, raised $12.3 million in Series B funding led by Panoramic Ventures

- Code Intelligence, a Bonn, Germany-based automated security testing platform, raised $12 million in Series A funding. Tola Capital led the round and was joined by investors including LBBW, OCCIDENT, Verve Ventures, HTGF and Github CEO Thomas Dohmke

- SamaCare, a San Francisco-based prior authorization platform for physician-administered medications, raised $12 million in Series A funding. Vive Collective led the round and was joined by investors including NextView Ventures, South Park Commons, and Susa Capital.

- Foundation Alloy, a Cambridge, Mass.-based metal part production platform, raised $10.5 million in funding. The Engine and Material Impact co-led the round and were joined by Safar Partners.

- SolarCycle, an Oakland, Calif.-based startup for recycling and reusing solar panels, raised a $6.6M seed round. Urban Innovation Fund led and was joined by investors including Closed Loop Partners, SolarCity founders Peter & Lyndon Rive, and Sunpower CTO Tom Dinwoodie.

- Cloudwall Capital, a New York-based digital asset risk management startup, raised $6.3 million in seed funding. LocalGlobe and Illuminate Financial led the round and were joined by investors including IA Capital Partners, Eberg Capital, NEMO Ventures, and other angels.

- Privyr, a Singapore-based leads and clients management platform for salespeople and businesses, raised $6 million in Series A funding. MassMutual Ventures and Vulcan Capital led the round and were joined by investors including Wavemaker Partners, author Nir Eyal, and former Facebook executive Gwendolyn Regina.

- CloseFactor, a Palo Alto-based automated sales research platform, raised $4.5 million in seed funding led by Sequoia Capital.

- Innerwell, a New York-based psychedelic teletherapy platform, raised $3 million in pre-seed funding. Greycroft led the round and was joined by investors including Looking Glass, Max Ventures, and other angels. 

- Koban, a Bolivia-based fintech, raised $2.3 million in pre-seed funding from investors including Precursor Ventures, FJ Labs, Goldtruck Holdings, and Class 5 Global

PRIVATE EQUITY

- Clayton, Dubilier & Rice agreed to acquire a majority stake in the industrial businesses of Roper Technologies, a Sarasota, Fla.-based software development company, for approximately $2.6 billion. 

- Align Capital Partners acquired StenTech, a Dallas-based stencil and pallet manufacturer. Financial terms were not disclosed. 

- Altus Fire and Life Safety, an AE Industrial Partners portfolio company, acquired BK Systems, a Pembroke, N.H.-based installation, monitoring, and repair services provider for fire alarm, fire suppression, and security systems. Financial terms were not disclosed.

- Aquiline Capital Partners agreed to recapitalize Planet DDS, a Newport Beach, Calif.-based cloud-based software solutions provider for dental practices in North America. Financial terms were not disclosed. 

- CGI Automated Manufacturing, a portfolio company of CORE Industrial Partners, acquired Elite Manufacturing Technologies, a Bloomingdale, Ill.-based sheet metal components and assemblies supplier. Financial terms were not disclosed.

- Corsair acquired a majority stake in HungerRush, a Houston-based cloud-based software provider for the restaurant industry, from The CapStreet Group, who will continue as a minority investor in the company. Financial terms were not disclosed. 

- Repeats Group, backed by Ara Partners, acquired a majority stake in Daly Plastics, a Zutphen, Netherlands-based recycled LDPE producer. Financial terms were not disclosed.  

- Sun Capital Partners acquired TENAX, a Verona, Italy-based chemical products, abrasives, and tooling manufacturer for the treatment of natural stone, engineered stone, and ceramic tiles. Financial terms were not disclosed.

- ​​Warner Pacific, backed by Lovell Minnick, acquired the commercial dental health platform of Beta Health Association, a Denver-based dental, vision, life, and disability products provider. Financial terms were not disclosed.  

EXITS

- Astorg agreed to acquire OPEN Health, a London-based scientific communications and market access services provider to the pharmaceutical industry, from Amulet Capital Partners. Financial terms were not disclosed. 

- Bow River Capital acquired Amazing Care Home Health Services, an Aurora, Colo.-based pediatric home health care provider, from 3 Rivers Capital. Financial terms were not disclosed. 

- IMI agreed to acquire Bahr Modultechnik, a Luhden, Germany,-based modular positioning systems manufacturer, from IK Partners. Financial terms were not disclosed.   

- Kroll acquired Crisp Thinking Group, a Leeds, U.K.-based risk intelligence platform, from Baird Capital. Financial terms were not disclosed. 

- SGT Capital acquired Utimaco, an Aachen, Germany and Campbell, Calif.-based  cybersecurity and compliance solutions technology provider, from EQT. Financial terms were not disclosed. 

- U.S. Zinc, a portfolio company of Aterian Investment Partners, acquired EverZinc, a Liège, Belgium-based zinc materials provider, from OpenGate Capital. Financial terms were not disclosed. 

OTHER

- CI&T acquired Box 1824, a São Paulo-based consulting firm. Financial terms were not disclosed. 

- Frasers acquired Missguided, a Manchester-based women’s fashion retailer. Financial terms were not disclosed. 

- Take Command acquired the HRA technology assets from Savvy, a Silicon Valley-based healthcare company. Financial terms were not disclosed.

- Tango acquired billie, an Ottawa-based mobile-first workplace application. Financial terms were not disclosed.  

- Unit4 agreed to acquire Scanmarket, a Solbjerg, Denmark-based source-to-contract software company. Financial terms were not disclosed. 

SPAC

- Forbes, a Jersey City, N.J.-based media company, withdrew its plans to go public via a merger with Magnum Opus Acquisition Limited, a SPAC.  

- Freightos, a Barcelona and Jerusalem-based online freight shipping marketplace, agreed to go public via a merger with Gesher I Acquisition Corp., a SPAC. The company is backed by FedEx, SGX Group, Aleph, MoreVC, and others. 

FUNDS + FUNDS OF FUNDS

- Bonfire Ventures, a Santa Monica, Calif.-based venture capital firm, raised $230 million for two funds. They raised $168 million for a fund focused on seed stage investments in B2B software companies and $63 million for a fund focused on adding additional capital in future rounds for their portfolio companies. 

- Hannah Grey, New York and Denver-based venture capital firm, raised $51.6 million for a fund focused on pre-seed and seed stage companies.

PEOPLE

- Arbor Ventures, a Singapore-based venture capital firm, hired Peter Sanborn as general partner. Formerly, he was with PayPal

- Geodesic Capital, a Foster City, Calif.-based investment firm, hired Divya Sudhakar as partner. Formerly, she was with Intel Capital.

- Index Ventures, a New York-based venture capital firm, hired Paris Heymann as partner. Formerly, he was with Arena Holdings.

- Motive Partners, a London and New York-based private equity firm, hired Caroline O’Connell as an industry partner. Formerly, she was with Equitable

- Pharos Capital Group, a Dallas and Nashville-based private equity firm, promoted Jim Kerrigan to vice president and hired Philip Butler as a vice president. Formerly, Butler was with Apis Holdings.

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