Last night, the GigCapital team filed for their second SPAC with the $130 million GigCapital2, Inc. (GIX.U). Gig2 will be focusing on the technology, media and telecom sectors and will once again be led by Avi S. Katz, as Executive Chairman of the Board, Secretary, President and CEO.
However, the first GigCapital (“Gig1”), still hasn’t closed it’s combination with Kaleyra yet. In fact, Gig1 has an extension vote coming up on June 5th, at which, they will be asking to extend their deadline from June 12th to December 12th, a full six months, without any contribution to trust for shareholders who do not redeem. Clearly, there are a couple of concerns here.
First, if Gig1 needs until December 12th to close their combination, that’s a full seven months away. That implies there is still a whole lot more work to do between now and then to close that transaction. So, in between that time period, they intend to launch and market a whole new SPAC (Gig2), which should price in June. And once Gig2 has IPO’d, they’ll then need to devote time to finding Gig2 a target. Which one are they going to focus on…Gig1 or Gig2? This seems….challenging and the optics on it are not great. Generally, a team can launch a new SPAC if they only have a month (two at most) left to finalize the details on a combination, but Gig1 is asking for six whole months to extend.
Second, Gig1 is not offering any contribution to trust in order to extend their deadline. The fact that the team is no longer entirely focused on closing Gig1, what incentive (if any to begin with without a contribution) do shareholders have to not redeem? It would be one thing if Gig1 was trading significantly above trust value (like Churchill), but it’s not. It’s only trading AT trust value.
But let’s put those concerns aside and focus on the structure. Gig2 is offering 1 share + 1 full warrant and is 100% in trust with 21 months duration. This is not terrible, but the fact that their focus is now divided between two SPACs means they might have to sweeten this deal in some way in order to get investors interested. Maybe 18 months? Plus, there is currently no Crescent Term included.
Additionally, the underwriters are participating in the at-risk capital by purchasing units (39,000 units for Northland, and 26,000 for EarlyBird) and shares (100,000 shares at $10.00 for Northland). All total, the underwriters will be purchasing $1.65 million of the total $5.495 million at-risk capital, or approximately 30% of the total. However, the underwriters are getting founders shares as compensation. BUT the number of founders share they are receiving amounts to only 6.7% of the total (without an over-allotment: 130,435 founders shares for Northland and 86,956 for EarlyBird). The sponsors however, will own 3,032,069 founders shares before over-allotments. That seems like a lot of uncompensated risk for the underwriters and a whole lot less risk for the management team.
Speaking of the underwriters, Cowen and Chardan underwrote the first GigCapital, but now, EarlyBird and Northland will be taking this SPAC public. I’m not sure what that means, but its definitely curious.
The roadshow is going to be challenging for Gig2….they’re going to get a lot of questions and its unclear if the answers will be satisfying. Let’s see what happens with the next filed amendment.
Summary of terms below:
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