Double Header Tonight: Gores III and Churchill Capital Expected to Price

IPOs-Ahead

Double Header Tonight: Gores III and Churchill Capital Expected to Price

Sep 6, 2018 INTEL by SPACInsider

$825 Million in SPAC Gross Proceeds to Trade Tomorrow

Both Gores Holdings III and Churchill Capital will be pricing their deals tonight for trading tomorrow, kicking off the fall season with a bang and a little competition. It’s a Deutsche Bank deal versus a Citigroup deal, Mets against the Yankees, Giants versus Jets, who’s your favorite team?

All kidding aside, these deals are quite different if you peel through the layers.  However, Deutsche Bank and Citigroup have traditionally been the SPAC underwriting heavyweights and the fact that both are now sole bookrunners and the only banks on their respective covers, and both pricing the same day, the analogy seemed fitting.

Gores III, has two successful SPACs under their belt with Gores I (TWNK) and Gores II (the proposed transaction with Verra Mobility).  This is a very experienced SPAC team that knows how to navigate the de-spacing process. Churchill, while new to the SPAC game, has an impressive roster of names with Jerre Stead and Michael Klein leading their team.

However, what’s interesting is the size of these deals.  Gores III is sticking with $375 million, yet Churchill has already upsized $50 million to $450 million.  Now, at first blush you might think bigger is better, but that’s not always the case.  To really understand SPACs, you can’t just look at the IPO.  You always HAVE to consider the business combination and sometimes having too much money can be a real hindrance in finding an appropriate target.  You can’t give the money back if you find a small target.  But you CAN always raise more money at combination (just don’t do it at less than $10.00).

So, the size of Churchill is a little curious given their intended sector focus of tech and software. With a full over-allotment, they could potentially raise a total of $517.5 million. You might be thinking, but wait…tech is hot and there are some really cool “unicorns” out there that may want to go public. This is true, but here’s the question to ask yourself:  Do you think a hot unicorn in the $1 billion+ range would rather go public via a SPAC, with a warrant overhang and maybe not as much cash in trust as they hoped post-vote, or do you think they would rather go pubic via the traditional IPO route?  The SPAC route is certainly cheaper and that is definitely a selling point to some, but some tech companies don’t even want to go public anymore.

But here’s the thing about SPACs…you’re really betting on the SPAC team – the dealmakers and their backgrounds –  and Churchill’s team has an abundance of skill.  That’s why they’ve been able to upsize. Can they pull off a successful combination?  They absolutely have an excellent shot and investors seem to think so too.

You know what you’re getting with the Gores III team?  Experience.  They understand the SPAC game and that experience is telling them to stand at $375 million with maybe a small over-allotment to $400 million. To be clear, from what we’ve heard (and from very good sources) Gores III could have raised far more if they wanted to.  Demand is big.  They just chose not to.

Regardless, both are high-profile SPAC deals and I give both a better chance than average to present A+ business combinations.  It would make an excellent re-match if both present transactions at the same time… Round 2!!

As a reminder, I’ve listed the summary IPO terms for both SPACs below, but you can also find Gores III here and Churchill here.

Summary of terms are as follows:
Gores Holdings III, Inc.
  • Focus: General / Broad
  • Size: $375 million
  • 100% in trust ($10.00 per share)
  • At-risk capital: $9.5 million (6,333,334 warrants at $0.50)
  • $10.00 Unit comprised of one share of Class A Common Stock + 1/3 of one Warrant
  • 24 months to complete an acquisition
  • Limitation on redemption rights: 20%
  • Warrant call (cash/cashless):  >$18.00
  • Warrant call (shares):  >$10.00
  • Underwriter fees: 2.0% + 3.5% deferred
  • Deutsche Bank: sole bookrunner
Churchill Capital Corp.
  • Focus:  Technology / Software
  • Size: $450 million
  • 100% held in trust ($10.00 per share)
  • At-risk Capital: $13.5 million (13,500,000 warrants at $1.00)
  • $10.00 unit comprised of one share of Class A Common Stock + 1/2 of one Warrant
  • 24 months to complete an acquisition
  • Limitation on redemption rights: 15%
  • Warrant call (cash/cashless):  >$18.00
  • Underwriter fees: 2.0% + 3.5% deferred
  • Citigroup: sole bookrunner



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