IPOs

Unwarranted: Four SPACs shed warrants as deal flow stays at a record pace

This week, four blank check companies filed amendments with the SEC to remove warrants ahead of their prospective IPOs. Lerer Hippeau Acquisition (LHAA), Vector Acquisition II (VAQC), SVF Investment 2 (SVFB), and SVF Investment 3 (SVFC) will now offer common shares only, rather than the units they originally filed to offer.

The teams behind these four names have previously taken SPACs public, though none have completed mergers. Vector’s first SPAC Vector Acquisition I (VACQ; +13 from offer) is pending a combination with Rocket Lab, while Ben Lerer’s Group Nine Acquisition (GNACU +2%) and SoftBank’s SVF Investment Corp. (SVFAU; +21%) are still looking, having only completed their offerings in January.

Historically, warrantless SPACs have only been viable for an elite group; of the nine SPACs that began trading on Thursday the only one that finished positive was also the only one without warrants (KVSA).

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SPACs typically need warrants to entice IPO investors, but soaring stock prices at the merger announcement have generated enough demand for new issues that sponsors have been able to reduce fractional warrants or ditch them entirely. In the past year, 59 SPACs filed or priced IPOs without warrants, 24 of which are currently trading. In the past two weeks alone, five SPACs filed without warrants (RGAC, RACB, FLSU.RC, TRTL, KVSD).

Public warrants can be a thorn in the side of SPAC managers; at the negotiating table, target companies are sensitive to large overhangs of potentially dilutive stock, which can put downward pressure on the share price post-merger.


However, if the SPACs continue to break issue like they did on Thursday, more sponsors may be forced to bring back warrants.

The article Unwarranted: Four SPACs shed warrants as deal flow stays at a record pace originally appeared on IPO investment manager Renaissance Capital's web site renaissancecapital.com.

Investment Disclosure: The information and opinions expressed herein were prepared by Renaissance Capital's research analysts and do not constitute an offer to buy or sell any security. Renaissance Capital's Renaissance IPO ETF (symbol: IPO), Renaissance International ETF (symbol: IPOS), or separately managed institutional accounts may have investments in securities of companies mentioned.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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