Novus Capital Corp. (NOVSU), filed for a $100 million SPAC IPO last night, but it seems this deal’s terms are from another era. An era that existed pre-Covid and the economy was still humming and every SPAC team could command generous terms. Yes, the SPAC machine has already been cranking out new deals, but even the strongest of teams has had to make concessions in a world that is still effectively on pause. Which is why Novus Capital Corp.’s terms are a real head-scratcher. But first, let’s review the focus and team.
Novus plans to focus on the “smart technology innovations market”, which is further defined as companies, “at the forefront of high technology and are enabling the future evolution of 5G communication, virtual reality, artificial intelligence, cloud computing, machine learning, hardware and software distribution and value-added customized logistics services.” So, tech.
Robert Laikin, who will be Chairman of Novus, has a background that has most recently been primarily in real estate. He currently serves as non-executive Chairman of the Board of Washington Prime Group Inc. (NYSE:WPG), which is a retail real estate REIT. He is also the managing member of L7 Investments LLC, a “a closely held company that invests primarily in multi-family apartments as well as single-purpose buildings, hotels, divestitures and single-family homes.” Mr. Laikin does have some experience in logistics services for mobile device companies, having previously been the founder, CEO and director of Brightpoint, Inc. (Nasdaq:CELL), which was sold in 2012 to Ingram Macro Inc., as well as Executive Advisor to the CEO and Government Relations Executive of Ingram Micro Inc. (NYSE:IM).
Larry Paulson, who will be Novus Capital’s CEO and Director, served as principal and founder of Rancho Santa Fe Solutions, a wireless industry consulting company he founded in February 2010. However, I could not find a website or any information on Rancho Sante Fe Solutions. Regardless, from 2013 to January 2020, Mr. Paulson was with Qualcomm (Nasdaq:QCOM) where he served as Vice President of Product Management (2013-16), Vice President and President India and SAARC (2016-2018) and Vice President Sales NA and Australia (2018-Jan 2020).
The team’s directors includes Heather Goodman and Brad Bostic. Ms. Goodman is the Chief Operating Officer and President of True Capital Management, a boutique multi-family office specializing in business management and investment advisory services for athletes, entertainers and high net worth individuals. Wheras Mr. Bostic is the founder, the Chairman and Chief Executive Officer of hc1, a bioinformatics company with more than 1,000 health systems and diagnostic laboratory sites utilizing its machine-learning powered software.
While all sound impressive, there isn’t the deal-making experience background you’d want to see for a SPAC.
Now that we have some background on the team and target focus, let’s look at the terms.
Novus Capital is asking for 24 months, 100% in trust, and a 1/2 warrant. Now, typically, EarlyBird likes to use a 21 months duration and they used that quite frequently pre-covid (read: Tuscan I, Tuscan II, Galileo, LIV Capital, Interprivate). However, for Novus they are asking for 24 months.
Additionally, they are asking for a 1/2 warrant for Novus. Of Earlybird’s 2019 deals that had 21 months duration, only two of them had a 1/2 warrant – Interprivate and Tuscan II. But again, Interprivate and Tuscan II only had 21 months to find an acquisition, not 24 months. The rest had 1 full warrant included in their units. (Note: Gig2 had 18 months and a full warrant). The lone exception being Merida Merger Corp., which had 24 months and a 1/2 warrant. But again, Merida came public at a VERY different time (November 2019).
These are very generous terms for a team without any SPAC experience in a pre-Covid environment. However, that time has come and gone and we’re currently in the thick of a pandemic and a global economic shutdown. Even the elite brand name teams have had to come down on warrants (read: Social Capital II, III, Fortress Value, CC Neuberger) and time (read: Fortress Value originally asked for 24 months + 3 months with signed LOI, but revised it to 24 months) and had to forego the ability to remove interest to fund working capital (read: Fortress Value, Chardan Healthcare 2).
In summary, these terms feel off market. Especially when investors have so many new SPACs on file to choose from. Keep in mind, we currently have 85 SPACs out searching for targets and another 11 on file to IPO. That will make 96 SPACs out searching if all 11 price. That’s a lot of choice. I suspect investors will pushback, but we’ll have to wait and see. Stay tuned for any further developments.
Summary of terms below: