Dr. Ed Bersoff, the recipient of ACG National Capital’s 2007 Lifetime Achievement Award, was introduced by event sponsor, David Greene, of Bernstein Global Wealth Management. Following his introduction, Dr. Bersoff shared information about the use of a Special-Purpose Acquisition Company, or “SPAC,” in the purchase of ATS Corporation to those in attendance.
Dr. Bersoff, who currently works as the Chairman of Greenwich Associates and serves as a director on the boards of several charities and public and private businesses, began by paraphrasing Winston Churchill’s famous quote that “Democracy is the worst form of government except for all those other forms that have been tried.” Adapting the comment to his experience using a SPAC to purchase ATS, he noted that “A SPAC is the worst investment vehicle to grow a business except for all the others that have been tried.”
He went on to explain how the ATS acquisition led him to develop this opinion of SPACs and provided a quick overview of some SPAC rules, including:
- A SPAC raises money through a public offering for the specific purpose of acquiring another company.
- The target company cannot be identified prior to the IPO.
- Once public, the SPAC has 18 months to identify a target and 24 months to complete the acquisition.
- Public shareholders of the SPAC have to approve the acquisition by vote.
In his case, the initial public offering went well, funding the SPAC with $126 million. The group also identified a target ahead of schedule, deciding to acquire ATS well before the 18-month deadline.
At that point, the process bogged down somewhat. As one of the first SPACs created, Dr. Bersoff’s group found that the SEC’s review of the proxy statement took considerable time. After 6 revisions over the course of 7 months, the SEC finally approved the proxy statement.
Dr. Bersoff next came up against the shareholder vote requirement. In creating the SPAC’s stock, the group included a warrant feature. Many of the hedge fund investors, who held a majority of the stock, were already looking at a positive return from the warrants even if the SPAC never acquired its target.
Dr. Bersoff spent the month of December 2006 working to get the hedge funds to approve the ATS purchase. During the Q&A after his presentation, he pointed to this period as one of the most challenging moments that he had faced. He found that the best leverage he had was the additional time remaining on the SPAC’s clock. Because he had the option of seeking another target, the hedge funds could not get their investment back as soon as they wanted. Eventually, he negotiated a deal that won them over but at the cost of the target’s liquidity.
He spent the next 3 years as the CEO at ATS, working to reform the financials and the corporate culture. In 2010, Dr. Bersoff stepped down as CEO. Not long after, ATS engaged an investment banker to pursue “strategic options,” and the company was eventually sold.
Dr. Bersoff noted that the biggest problem he faced with the SPAC entity was the requirement for shareholder approval of the transaction. The majority of his investors were more interested in short-term returns over long-term growth, and that made it difficult to operate the business. He suggested that if he was to attempt a similar acquisition knowing what he learned from his SPAC experience, he would seek to raise the funds from private equity sponsors with sufficient resources.
Have you employed a SPAC in the acquisition of a company? If so, what was the experience like? Drop us a comment below and let us know.