Another SPAC deal stymied

One step forward and one step back. That sums up the week in the life of the special purpose acquisition companies, a shareholder-friendly structure that allows private companies to go public.

This week, Alignvest Acquisition Corp. received overwhelming shareholder support to proceed with its qualifying transaction, the purchase of U.S. based Trilogy International Partners, a company that provides wireless communications services in New Zealand and Bolivia. Alignvest has now joined Acasta Enterprises whose qualifying transaction was approved last month.

But there will be no transaction, at least for the time being, at Dundee Acquisition Corp., the company that was the country’s first SPAC. (It achieved that distinction in early 2015 by raising $112.3 million.) Wednesday it announced so many shareholders wanted to redeem their holdings that it didn’t have enough cash on hand to fund the acquisition of CHC Student Housing Corp.

And those who wanted out — really wanted out. In all, holders of 10.77 million Class A Restricted Voting Shares, out of a total of 11.23 million shares outstanding, wanted their money back. That’s equal to a 95.9-percent redemption rate. (At Acasta, the equivalent number was 70 per cent.)

As a result — and despite seeking $50 million from a proposed private placement — Dundee didn’t have enough cash on hand to meet the targeted minimum cash amount of $87.3 million. But those wanting out won’t be receiving the cash they requested.

Dundee tried hard to get there. Earlier, it cut the number of Class B shares the insiders owned — in effect its promote shares — by 75 per cent. And it tried to round up additional capital.

And it will press on. “We are disappointed in the level of redemptions but we are excited about the long-term prospects of student housing in Canada and are committed to working to (bring a transaction) that works to ours and CHC’s shareholders,” said Jonathan Turnbull, the company’s managing director.

Under the SPAC rules, Dundee has until about mid-April to complete another transaction. “We will work away and get a deal for our shareholders,” declared Turnbull.

Having enough cash on hand wasn’t a problem for Alignvest, which closed its IPO in July, 2015, with $258.8 million in proceeds. (As with Dundee, Alignvest sold units in that IPO with each unit consisting of a share plus half a warrant. When the IPO closes, the units split into separately traded shares and warrants.)

But holders of 23 per cent of the shares outstanding wanted to redeem — meaning that holders of 77 per cent wanted to remain. But Alignvest didn’t take any chances and raised an additional $82 million before its qualifying transaction was announced. As a result, that fund-raising meant it had more cash on hand than it raised in its IPO.

When asked for the reasons behind its success, Tim Hodgson, Alignvest’s chairman, said, “we tried to understand what the market wants in a successful SPAC candidate.” Accordingly, it engaged in considerable due diligence with SPAC sponsors in the U.S., and with investment bankers and lawyers who had worked on SPACs.

Armed with that information, it drew up criteria for selecting a target: it wasn’t interested in a company where management wanted to sell some of its shares; it wouldn’t participate in an auction for the target, and its focus was on valuation. “We have to buy (the target) at a price where investors know that the stock is going to trade well after the deal closes,” he said, adding two of its board members have had considerable experience in the telecom sector.

Court approval could come Thursday.