SPACs - A Question

[James Kitching]

Hi all,
So I won’t pretend to know everything about financing deals, PE, SPACs, IPOs, direct listings etc, but I have done a bit of research over the months and I can’t shake this one thought....

Isn’t this just debt piling on debt?
I read this morning about 2 PE firms (Dyal and Owl Rock) merging and going public through Altimar Acquisition Corp (SPAC)....
So 2 PE’s (Who’s business model is to make a profit from geared investments) are merging and going through a SPAC which is also fuelled by investors money and subject to failure if the wrong steps are taken.

Is it me, or does all this seem financially weird and feels like it could end in tears? I would greatly appreciate all insight, cheers!

 

[Rob93]

Hi James,

Caveat emptor - this may not be quite on the mark, as I'm just going off of a quick look at the press around the transaction and my general understanding of SPACs & PE.

It is definitely an unusual transaction in a number of ways. Important to note, however, that neither Dyal nor Owl Rock are PE firms in the way, say, KKR or Bain Capital are, and in the case of Owl Rock it is specialised in providing leverage rather than using it. The tie-up likely makes sense in terms of being able to deploy expertise (and capital) to provide bespoke debt/equity financing solutions to PE houses.

In simplest terms, the SPAC merger just means that there will be an injection of public capital and a diversification of the equity investment base in the new entity. From the perspective of the pre-merger SPAC investors, it's of course possible that the investment will fail or at least stumble if share price slips below the subscription price, but that's an inherent risk with SPACs and, frankly, any equity investment. From the point of view of Dyal and Owl Rock, using Altimar for this tie-up will be fair quicker than merging->reorganising->IPO, and provides better control over the economics in terms of capital brought into the company when it is taken public.

I'm sure there's far more to it than this, but I suppose the short answer is that is is a bit weird and it could end in tears, but there's nothing I've seen to indicate that piles of debt are coming into play as a result of this tie-up.