This afternoon, we had another new SPAC filing. This latest one is the $150 million SC Health Corporation (SCH.U), and will be led by David Sin, as Chairman, and AJ Coloma, as CEO and Director nominee. Both Mr. Sin and Mr. Coloma hold senior positions at SINCap and FHC.
Looking a little more closely at their backgrounds, Mr. Sin is the Founder of the SINCap group of companies, a multi-asset investment group focused on real estate and private investments across Asia, and the Co-Founder, Deputy Chairman and Group President of FHC, a leading vertically integrated healthcare platform in the Asia Pacific region.
Mr. Coloma is a Managing Director – Investments at SINCap, where he focuses on private equity investing in the Asia Pacific region, as well as Group Head of M&A at FHC, where he is responsible for leading group M&A activities in the healthcare space, also across the Asia Pacific region.
However, focusing on the terms, there are a few items of note. First up is the forward purchase agreement for $50 million by SC Health Group Limited. Typically, you will see a Forward Purchase for units at $10.00 that match the units offered to the public holders. However, in the case of SC Health Group Limited, they will effectively be getting a 1/4 warrant in their units purchased (5 million shares + 1,250,000 warrants, for $10.00).
Additionally, you’ll notice that SC Health has included the rarely seen “redemption of warrants for shares” with a $10.00 trigger. This feature is typically seen (so far) in tier-1 SPACs and means that while the company can call the warrants post-combination for cash or cashless exercise at $18.00, they can also call them for redemption for shares at $10.00 or greater. The amount of shares an investor will receive in the call for shares scenario is based on a black scholes model that has calculated the fair market value based on the time and price at which they are called. Furthermore, the forward purchase warrants have the same terms as the public warrants so if management decides to call the warrants at $10.00 for shares, the forward purchase warrants are called as well.
Interestingly, SC Health has an 18 month duration and a 1/2 warrant, not 24 months with a 1/3 warrant that you would typically see in SPACs utilizing the warrant redemption for shares feature. So far, only A++ teams have included the term and they have all had 1/3 warrant and 24 months.
Maybe that was the choice….go out with 24 months and a 1/2 (or 1/3) warrant WITHOUT the warrant call for shares feature, or 1/2 warrant, 18 months WITH the warrant call for shares. From the point of view of a team searching for a target, it’s certainly easier to negotiate with a seller knowing you’ll have the warrant call for shares feature to clean up that overhang. Hence, why they’re going with 18 months, 1/2 warrant. You gotta give a little to take a little.
All told, this SPAC looks well structured. Warrant holders may push back a bit on the warrant call for shares since this isn’t a classically “tier-1” team, but keep in mind that the volatility being used in the black scholes model to calculate the fair value of those shares is approximately 40%, which is high. It’s a pretty good value.
Summary of terms below: