On Monday evening, we had another new IPO filing to round out the current four we have on file with LGL Systems Acquisition Corp., (DFNSU), a $125 million SPAC focused on the aerospace, defense and communications industries. LGL will be led by Robert “Bob” V. LaPenta, as Co-Chairman, and Marc Gabelli, as CEO and Co-Chairman. However, this SPAC team has an incredible 11 members in total, which is basically the size of a football team. In fact, you would be hard pressed to find another SPAC that could even match or come close to the number of team members that LGL has. This team has a deep bench, a couch and a few side chairs.
However, as mentioned above, this team will be focusing on the aerospace, defense and communications sectors and is being sponsored by the Gabelli Group and Aston Capital. If a SPAC is going to focus on aerospace and defense, you probably couldn’t do much better than this team. Both the Gabelli Group, which includes GAMCO, NYSE: GBL, as well as L3 Technologies, which Mr. LaPenta co-founded, are big names in the defense industry. Plus, the entire team has extensive experience in the sector in either (or both) the investment and industry side. But wait, there’s more…this SPAC, in addition to the 11 listed team members, has no less than FIVE special advisors. For those keeping count, that’s 16 total associated with this SPAC. It would be far too difficult to go through everyone’s background here, but let’s just say everyone involved is pretty plugged into the defense industry and they all probably have access to some really cool “toys”.
Nevertheless, LGL’s structure is a 100% in Trust, 24 months, 1/2 warrant structure, which is pretty interesting since they probably could have tried for a 1/3 warrant. However, this is a first time SPAC team, and the market has not been kind to first time teams with 1/3 warrants as of late, so going with a 1/2 warrant is a smart move. Plus, given this team’s background, it’s also communicating to investors that they’re confident in their ability to get a deal done regardless of warrant size and they’re looking to make investors happy (although, that’s relative. Happy in the sense that it’s better than a 1/3 warrant, but a full warrant would make them REALLY happy). As a result, there should be significant demand for this SPAC. In fact, that sponsor indication of interest of 5% might be a tip off to an up-size if that demand is big enough. Typically, an indication of interest states a flat amount, such as $10 million, $20 million, etc. However, by going with a percent of total offering size, they can still keep their interest at 5% and have the added benefit of not needing to amend all of the documents if the deal size changes.
Lastly, the deal size of $125 million is on the smaller side compared to many of the SPACs we’ve had this year, which have generally been in the range of $200 to $300 million. Again, smart. Smaller is better since you have a much larger universe of targets to choose from. You can always raise more money later if you need to, but you can’t give money back. Well, you can, you just have to force redemptions and that gets messy real quick.
In summary, this SPAC is stacked with defense industry players and it’s priced to sell. This one should have no trouble building a book. Look for LGL to price the end of October – the week of the 21st or 28th.
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