Bad news on the SPAC front

acquisitions, it also borrowed. At closing, the three businesses gave Acasta an enterprise value of $1.2 billion.

In early 2017, Acasta became the first SPAC to complete a qualifying transaction. (But shareholders were less than impressed: when the matter was put to a vote, 70 per cent wanted their money back.) Acasta also announced plans to become a long-term investment and private equity management firm.

Now comes word that Acasta, which sold units at $10 in its IPO (the same shares closed Thursday at $2.64), is continuing to press ahead with the sale of its aviation business, known as Stellwagen.

That business, which expanded last May when Acasta paid $30 million to purchase ECN Capital’s Commercial Aviation advisory and asset management business, is being sold back to the original vendors. (ECN Capital, which was spun out of Element Financial, was also slated to be in the SPAC business. It had a deal to acquire Infor, the country’s second SPAC, but that deal was called off because ECN didn’t trade at a high enough price.)

The big question, of course, is the difference between what Acasta paid for Stellwagen (and the ECN Capital acquisition) and the proceeds it will receive from selling it back. It’s a complicated exercise involving the cancellation of shares held by Stellwagen in Acasta, cash payments by Acasta and ending an earn-out between the two companies.

One analyst estimated Acasta spent almost $390 million in buying Stellwagen, $90 million was in cash, and another $30 million in buying the ECN business, but will get about $50 million net in return.

The issuer also aims to reduce costs and debt, and also implement a major restructuring plan. It’s a tough challenge as the bankers (TD and CIBC) are very interested. Acasta has managed to secure a second extension for a US$25-million payment due Thursday. That payment is now due on March 21, although it can under some conditions be extended to month’s end.

And it will have a new chief executive: Ian Kidson is the interim CEO, replacing Tony Melman. Calls to Kidson seeking a comment weren’t returned.

So what went wrong? One wag noted that they were doing fine “until they started to do something.”

But at a high level the demise is related to buying the wrong set of businesses, made worse in this case because there seemed to be no synergy between the three disparate companies that were bought; by paying up (goodwill was about onethird of its assets) and by taking on too much debt. Finally, there is the complexity of managing three private companies. As one private equity executive noted, “It’s not easy.”