Evercore Inc. has been wary of working on special deals historically, but that changed in 2020 as the vehicle became more legitimate, management said during the company's third-quarter earnings call.
Special purpose acquisition companies, also known as blank-check firms, often have incentive structures that do not align the SPAC sponsor and its investors, Evercore co-Chairman and co-CEO Ralph Schlosstein said. Evercore underwrote a blank-check IPO in the third quarter using a new structure the executive said would dilute investors less, a product the company called a CAPS: capital which aligns and partners with a sponsor. A typical SPAC IPO might give the sponsor 20% or more of the ownership after the offering closes, and sponsors are free to sell shares immediately.
"There's a big amount of dilution that goes to the sponsor just for doing a deal, which is quite different from more private equity-brand incentives where the returns to the sponsor are tied to the returns to the investment," Schlosstein said, according to a transcript. "So we created the CAPS product, which does that — aligns the interest of the investors and the sponsor to a much greater degree."
In Evercore's first CAPS IPO, for former U.S. House of Representatives Speaker Paul Ryan's Executive Network Partnering Corp., the firm's founders had a 5% ownership stake in at first, and the founder's shares are designed to convert into regular common shares only when the blank-check firm's publicly traded shares appreciate enough to hit certain thresholds. A second CAPS offering is in the works, Schlosstein said.
"In the last six to 12 months, a merger into a SPAC has become a quite legitimate way of introducing a company into the public markets and ultimately taking it public. So we're finding increasingly with our clients that are private that a consideration of capitalization alternatives includes a regular-way IPO, direct listing, merger with a SPAC or sale of the company," Schlosstein said.
"It's part of, and important to, our equities advisory business to be experts in SPACS," co-Chairman and co-CEO John Weinberg added, according to a transcript.
The SPAC market has exploded in 2020 after beginning to build momentum in the preceding two years. More than 80 blank-check firms have gone public in 2020, raising more than $35 billion, according to an S&P Global Market Intelligence analysis.