This evening, The Churchill Team (minus one key member) debuted their second SPAC with Churchill Capital Corp. II, a $400 million IPO. For this go around, Churchill II will have a broad focus and will once again be led by Michael Klein, as Chairman of the Board of Directors.  However, Jerre Stead, who was a big part of the success of Churchill I, will not be a part of the new management team.  He’s a little busy right now running Clarivate Analytics (CCC) as Executive Chairman and CEO.

Upon first reading Churchill II’s prospectus, I was initially disappointed to see Jerre Stead not included.  That is, until I read about the “Operating Partners“. These Operating Partners will be filling the very big shoes of Mr. Stead in a new type of SPAC role. However, the prospectus explains the concept best:

“M. Klein and Company has established an entity within the firm, Archimedes Advisors, which will invest in our sponsor and which consists of Operating Partners who will assist Mr. Klein in sourcing potential acquisition targets, and creating long-term value in the business combination for us.  M. Klein and Company’s Operating Partners are comprised of former senior operating executives of leading S&P 500 companies across multiple sectors and industries, including consumer, industrial, materials, energy, mining, chemicals, finance, data, software, enterprise technology, and media.“

Essentially, the Churchill team will have a deep bench of players and they can call any one of them into the game, depending on the sector, once they’ve found a target. Additionally, these Operating Partners aren’t idly standing by without any skin in the game. They’ve been incentivized:

“To best align the incentives of Operating Partners with our stockholders, each Operating Partner will invest in our sponsor and be eligible to share in a portion of the appreciation in founder shares and private placement warrants, provided that we successfully complete a business combination.“

Further to that….

“The Operating Partner that takes on a substantial senior executive or operating role at the acquired company, on a post-business combination basis, will acquire additional founder shares from M. Klein and Company and will have a vesting schedule (similar to that implemented for Clarivate) that is highly aligned with stockholder interests by requiring value creation for initial stockholders.“

The concept is pretty neat and frankly, seems like a real game changer.  The team still has Michael Klein’s deal-making prowess, but now, rather than having just one key operator on the team that focuses on one specific sector, they can source from a wide variety of sectors and still be able to sub in an expert and talented industry operator.  And on top of all that, the entire roster of talent is just as incentivized as Mr. Stead was originally.

However, focusing on structure, we have a few items to discuss.  First, Churchill II is asking for 24 months plus three additional months if they have a signed LOI or definitive agreement on file.  27 months seems like a lot for a team that announced their first transaction in four months. Perhaps it’s because now that they can look in any sector, it might take them a little bit longer to cherry pick the best one.  Instead of pool of say, 50 potential targets, they may be looking at 500 targets.  Sometimes having less choice makes things a whole lot easier. However, the Operating Partners should be able to help with the winnowing down process.  Nevertheless, maybe Churchill II just wanted the assurance of an extra three months and knew they could get it.

Additionally, Churchill II is now asking for 1/3 of a warrant, up from their previous 1/2 warrant in Churchill I.  1/3 of a warrant feels absolutely appropriate here given that their first deal was announced in four months, closed in just over eight months and with a share price currently trading just shy of $15.00…or $14.95, as of today.

However, in the case of Pivotal II, which just filed their second deal with a 1/3 of a warrant, the Churchill II filing couldn’t have come at a worse time.  Now there’s a comparable SPAC out in the market, at the same time, with similar terms – 1/3 warrant.  While 1/3 of a warrant already looked like a stretch for Pivotal II, now if you stack them up against Churchill…well, it’s just really unlucky timing.  If only Pivotal had waited a little longer and got their share trading north of $11.00, it might have been a very different conversation.

To sum up, Churchill II looks like a real winner. There should be massive demand for this deal and it’s noted that both Churchill I & II initially filed at $400 million.  Churchill I, however, eventually upsized and did a full over-allotment to top out at $690 million.  That might also be in the cards for Churchill II, but the trend lately has been for more modest sized SPACs.  A final number somewhere closer to $500 million seems more likely.

Summary of terms below: