How Do You Evaluate a SPAC Underwriter?
by Kristi Marvin on 2018-07-10 at 9:45pm

A Drill Down on the 2017 and 2018 SPAC IPOs To Try and Find Out.

If anybody has wondered where I’ve been lately, I’ve been working on this.  What  started as a conversation I had with a SPAC banker regarding a management team I thought he should pitch, wound up leading me down a deep, deep rabbit hole of data. And while I feel confident this banker can shepherd the deal with ease, something was gnawing at me… The league tables don’t tell the whole story. So what actually makes an investment bank a great SPAC underwriter?

The problem with SPACs are that they have two very different and important life events:  The IPO and the Business Combination Closing, and both require very different sets of skills from an investment bank.  And while both the IPO and Combination require that the bank in question have solid relationships with institutional investors, it is especially important that a bank have the “right” investor relationships at the Combination. And by that I mean, fundamental investors in the target’s industry sector or, investors that like the transaction.  So essentially, a bank needs to be able to market and sell TWO different transactions with TWO different sets of investors. However, let me back up a minute and explain a few things.

Selling the IPO

First, at IPO, you need to sell the deal and that is not an easy task when you are talking about very large SPACs.  Ironically, it’s sometimes even harder when they’re small because of the “perceived value”. (Side note:  perceived value pricing is a strategy where you set a price where you think a buyer is psychologically comfortable i.e., if it is too cheap, the buyer might perceive the item as less valuable than a more expensive and similar item and not want to buy it.) However, there are a number of institutions that have traditionally invested (and understand) SPACs so the process of selling an IPO is arguably a little bit easier than the business combination.

However, (here’s where it gets tricky) quite a large number of institutional SPAC investors don’t actually care about the combination.  They are in the IPO to trade the Warrant (and Right if it’s included) and they’ll collect the redemption or conversion pro rata amount in trust via the Share.  So, they’ve locked in a yield via the Share and have the optionality of trading or exercising the Warrant.  These investors, the ones that the bank already knows are going to redeem/convert right from the start, need to be “recycled” or replaced with more fundamental investors or investors who like the combination/sector/company and want to own the Share.

Again, two different transactions, two different sets of investors.

Marketing the Business Combination

To further complicate things, a SPAC doesn’t have to use the IPO underwriter to market the combination.  In fact, an investment bank can do a decent amount of business just functioning as a “Capital Markets Advisor” to the Business Combinations.  Many SPACs have brought on additional banks after announcing a combination to function in exactly this capacity.  However, now we’re talking additional fees….and a Capital Markets Advisor does not come cheap since it’s probably the most difficult and important task in a SPAC’s life.  They have to market a SPAC’s transaction in such a way that the loss of cash in trust to shareholders redeeming/converting is minimized.  They do this via recycling or replacing shareholders that want out or convincing existing shareholders to stay in. It is crucial that a Capital Markets Advisor be an “expert” in SPACs.

So getting back to how do we evaluate a SPAC bank…do we split the SPAC life events and evaluate the IPO and Business Combination capabilities separately?  I say, no.  The ideal SPAC Underwriter should be able to do both.  And they should also have a strong capability in the sector in which the SPAC is pursuing.  Having said that…I’m about to muck up the situation even further.

Sector Focus

A SPAC does not even have to find a Business Combination in it’s preferred sector focus.  The wording in prospectuses is such that a SPAC can look in any sector or geographic area, but it might have a “preference” for a particular industry, etc. Plus, there are SPACs that have a general or broad mandate…they state  they have no preference…they’re gonna look at everything.  So let’s say you are an Energy SPAC, you can look at any company in any sector, but your management team’s background lends itself well to oil & gas and that’s your preference.  Hence, you go out and find a phenomenal SPAC underwriter that also has an expertise in energy because you think their capital markets will have the “right” investors and hopefully, you’re business combo company will get covered by their energy research analyst.  And then, guess what…you find the deal of your dreams (or you run out of time) and it’s in….Fintech….now what.

So as you can see, evaluating a SPAC Underwriter is pretty challenging.  A SPAC should plan for the best, but also plan for the unexpected.


With ALL THAT being said, I took a look at the data to at least see if I could find any core competencies in the SPAC Underwriting group.  Mostly because I was curious.  But also because as an investor you absolutely should pay attention to who is underwriting these deals and who could potentially be advising them on the back-end.  Why?  Because if an investor base is not managed properly (front end to back end) by a bank that understands the SPAC product and the sector in which a SPAC is trying to do a combination, it could be a disaster for the stock price and ultimately, you could lose a lot of money trying to own or trade these products.

So let’s see what we can discover via the data, but first a note on how I arrived at all this information.  Sometimes it comes down to whether the SPAC’s sector focus and the underwriter align, so that’s where I started. The stated sectors, however, were a bit challenging. For instance, Atlantic Acquisition has a stated focus of “ethnic or minority owned businesses in the U.S.” I honestly didn’t know where to put this one at first, but ultimately decided to put it in the geographic focus sector. Plus, while some would argue that Fintech is different than regular Tech and should be grouped under Financial Services, I grouped them both (Fintech and Tech) into the Tech Sector. So, these are not standard industry classifications, these are more like, “SPACInsider groupings”.  I made judgement calls. Additionally, I used the 53 SPACs currently searching for targets, plus all of the other 2017 SPACs that have already completed or have announced, so the total group size was 63 SPACs. Note:  there are currently six SPACs that IPO’d in 2016 in the total 53 currently searching for targets, but those are the only ones from 2016.

SPAC IPOs by Sector Focus

First up, let’s look at the sector focus.  As you can see, Energy and Tech have been the most popular SPAC IPOs.  If you hover over each slice of the pie, you can see the deal count and percentage for each sector.  Both Tech and Energy show 11 and 10 deals each and command 17.5% and 15.9%, respectively, of the 63 SPAC IPOs.

SPAC Underwriter Deal Count Composition by Sector Focus

However, I wanted to see if any of the underwriters were focusing on any one sector as well as commanding a disproportionate amount of the SPACs in any one sector. The underwriters (all bookrunners or leads) all had to have completed a minimum of four SPACs of the 63 total to be included below.  If you click (not just hover) on each category in the legend, it will highlight which banks are completing IPOs in that particular sector.

Citi, Credit Suisse and Goldman Sachs all have over 50% of their SPAC IPOs focused on the energy and tech sectors, whereas the smaller banks cover a broad amount of the sectors. This is not surprising given that most acquisitions in Energy and Tech tend to be much larger in size and and hence, you’re probably going to want a bigger bank that can offer not just IPO and business combination services, but things like research coverage for your target once complete.  However, you will notice if you highlight the Geography sector in the legend, only EarlyBird, Chardan, and to a lesser extent, Credit Suisse show up.  This is because EarlyBird and Chardan have traditionally been the banks to underwrite the China/Asia focused deals. However, Credit Suisse made an entry with New Frontier.

Energy and Tech Sectors by Underwriter Units Sold

However, I still wasn’t seeing anything too surprising, so I broke down the two largest sectors – Energy and Tech – and calculated the exact number of units sold by the underwriters for each of their offerings in those sectors. So if the total IPO size was $150 million and that underwriter only sold $60 million of the total, they are only credited for $60 million.

Looking at the Tech Pie, Credit Suisse is a standout.  Tech SPACs only accounted for 23.1% of Credit Suisse’s total SPAC deal count and yet, they managed to put away $1.04 billion in Tech SPAC product – in fact, they put away 33% of all Tech SPAC units to IPO in our sample of 63.  And Citi….if they ramp up their SPAC program again, lookout.  Their capital markets is impressive.  They haven’t completed any IPOs in 2018 and they still managed to account for nearly one-third of all Energy SPAC units sold. Lastly, Deutsche Bank, a consistent leader in SPAC IPOs, only sold $144 million in Tech SPACs, which was a little surprising.

Focusing on the smaller banks now, EarlyBirdCapital, a bank that has been a bookrunner or lead for 13 deals in the past 18 months (more than any other bank), also appears to be a little weak in Tech with only $42 million sold.  However, in Energy, they sold $277 million, which is an impressive amount for a boutique bank.

One very important point I haven’t touched on yet is familiarity with the SPAC product.  Your bank can have the biggest and best capital markets team in the world, but if they’ve never had to sell a SPAC before and don’t understand them, well, it will be “challenging.” Seriously.  There is something to be said for a high deal count in the league tables because at least you know their sales team has SPAC experience.


In summary, this information still doesn’t tell the complete picture.  It doesn’t tell you about a bank’s research analysts, it’s ability to get retail into a deal or it’s debt financing capabilities or any of the other bells and whistles a SPAC may or may not need from an underwriter.  However, it does indicate both an underwriters preference for a sector and capability.

In the end, I found it nearly impossible to drill down and find a way of properly evaluating a SPAC underwriter using data.  There are just too many variables and too many moving parts to the SPAC process. Plus, this doesn’t even get into the SPAC management team’s name and reputation, which is the most significant factor in getting an IPO sold.  Yet, I still found it interesting and it did provide some illumination.

The exercise didn’t give me the answers I wanted, but it still bore out some interesting stuff.


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