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Dundee Corp. is on the hunt for deals and is launching a special purpose acquisition company (SPAC) to gather investments.
Dundee Acquisitions aims to drum up at least $100-million and launch the fund on the Toronto Stock Exchange, with the intention of buying an unknown business.
The initial public offering would be the first of its kind in Canada, after rules changed in 2008 to allow the structure in the country. In the U.S., where SPACs have raised billions of dollars from investors in recent years, companies from American Apparel Inc. to Burger King Worldwide were taken public in this way.
A SPAC raises money from investors through an initial public offering where the SPAC's organizer, or sponsor, pledges that an acquisition or other investment will be made later. It has no assets other than that cash, which is placed in escrow and is typically invested in bonds while management searches for deals. Often the investors get few details on the industry or business that the SPAC will target, which is why they're nicknamed "blank-cheque companies." Investors need to trust the management team to get a good deal.
SPACs tend to target retail and smaller investors that want access to private equity-type deals, but don't have the connections. Investors can sell their shares any time, and have the power to veto proposed acquisitions through votes.
For a company being acquired, a SPAC can be an easy way of going public, or an alternative to private investment.
And the sponsor has an easy exit strategy from the investment later, with the potential to make significant returns. Dundee Acquisitions is sponsored by Dundee Corp.
Dundee Acquisitions has a dual-class share structure, which is a requirement of the Canadian rules for SPACs. Investors buy the Class A shares, which can be converted into class B shares when the company makes an acquisition. Dundee Corp. pledged to buy at least $4-million in Class B shares, which come with 2 million warrants. These shares only have value if a deal is done, and are held outside the main investment account. The IPO founders will eventually have a 20 per cent equity interest in the company, with a little more than 20 per cent of the votes.
The prospectus sheds some light on the kinds of deals Dundee Acquisition will target. The SPAC is after North American – particularly Canadian – companies with an enterprise value between $200-million and $800-million. This fund is agnostic about which industries it will target, but it will not be buying up any startups or other speculative investments. The company has 21 months to make an acquisition, but that could be extended to 36 months with shareholder approvals.
In this deal, there are $6-million in underwriting commissions on the table, with some of them only available to underwriters after an acquisition closes. Underwriters include TD Securities, Cantor Fitzgerald Canada, National Bank Financial and Dundee Securities.
The TMX Group changed their rules to allow SPACs after they became popular in the U.S. – in 2008 SPACs accounted for about half of all IPOs, and 11 new SPACs were launched in 2014. European indexes have also allowed SPACs for years.