SPAC King hails American exceptionalism on return
Chamath Palihapitiya, the self-dubbed SPAC King, is back in the game after filing documents last week for a US$250m SPAC IPO for American Exceptionalism Acquisition, a US-centric vehicle that plays into themes popular under the Trump administration.
"No crying in the casino," Palihapitiya declared in the IPO filing, paraphrasing a Trump adage as a warning to retail investors to “proceed with caution”.
Retail punters have been evident on SPACs that have successfully completed mergers this year, most notably the tie-up of Tether-backed Twenty One. After the US$200m Cantor Equity Partners SPAC agreed the de-SPAC with the bitcoin hoarder in April shares spiked to a high of US$59.75 before moderating to US$24.84.
Valued at US$2.4bn, the Twenty One-CEP tie-up came with US$585m of PIPE funding from the likes of SoftBank and a package of in-kind bitcoin provided by Tether as consideration. Some retail hype is understandable in the case of Twenty One.
American Exceptionalism is a pitch for funding for “four areas [that] ... need substantial capital if the United States is to maintain its position as the most important country on earth and the only global superpower”. They are energy, artificial intelligence, decentralised financing and defence, Palihapitiya says in the filing.
This is a patriotic pitch, even though Palihapitiya was born in Sri Lanka and grew up in Canada before solidifying his roots in Silicon Valley as a senior executive at Facebook.
Santander, the Spanish bank that employs several bankers who used to work at SPAC powerhouse Credit Suisse, is leading the trade.
While it is easy to be cynical about all SPACs, where sponsors win and punters often lose, and particularly so when the pitch is so blatantly to the MAGA crowd, there are obvious merits to aligning financial interests to government ambitions.
Palihapitiya, whose SPAC highlights include SoFi Technologies, is bringing extra firepower to American Exceptionalism.
For starters, his new SPAC is structured entirely as common stock, with no warrants. That is 25m shares to be priced at US$10, as opposed to a unit constructed of one share and a fraction of a warrant exercisable post-merger at US$11.50.
Stock-only SPACs have been done in the past by high-profile sponsors such as Altimeter Capital (Altimeter Growth) and Reid Hoffman (Reinvent Technology Partners Y).
Removing the dilutionary overhang of warrants is beneficial in negotiating a merger.
Through American Exceptionalism, Palihapitiya is seeking to overcome a bigger point of friction that comes from the sponsor promote. Palihapitiya is getting a 30% stake in the IPO for US$25,000.
Dilution to the target shareholder from the promote is a point of contention in mergers and typically negotiated down at the back end.
While the 30% promote is above the 20% stake typical for SPAC sponsors, Palihapitiya only realises gains if shares trade up post-merger. Of the 10.8m founder shares, 3.6m (one-third) vest at prices above US$15, another third above US$17.50, and the final third above US$20.
This is exceptional SPAC structuring, even if the SPAC’s mission won't suit all investor tastes.