It’s an accepted truism that corporate branding has the power to shape perceptions of an organization to advance its strategic plan. But if ever there was a situation in which a clear and compelling brand strategy could play a fundamental role in the success of a business venture, it is with Special Purpose Acquisition Companies, or SPACs as they have become known.
In recent months we’ve had many clients approaching us looking for brand guidance around a SPAC strategy.
SPACs have become the darling of Wall Street over the past year. Spurred by the onset of COVID, this transaction du jour has rapidly become a credible alternative means for private companies to raise capital and complete an IPO in lieu of the historically lengthy process of going public on their own.
Based on our experience, here are some learnings and pointers for companies contemplating such a move. First, some background.
Why are SPACs so popular?
The rise in popularity is astonishing as the SPAC numbers don’t lie. To put it in perspective, 49 SPACs went public in 2019 with gross proceeds of $13.6 billion. In 2020, total SPAC IPO transactions rose to 248 with $83.4 billion in gross proceeds and through August 2021 YTD, total SPAC IPO transactions are up to 395 with gross proceeds at $118.2 billion. That’s a 706% increase in total SPAC transactions and a 769% increase in gross proceeds since 2019, and there are no signs of slowing.
For those new to SPACs, let’s break down the basics. Essentially, a SPAC is a shell company formed with the sole purpose of raising capital through an IPO with the intent of acquiring one or more private companies after going public. This is why SPACs are often referred to as “blank check companies.” A special caveat to SPACs is they only have two years to complete an acquisition or they must return the funds back to its investors.
SPACs are attractive to both investors and target companies because it’s a speedy way to access the public markets. Per EY, since SPACs have a straight-forward business purpose, most can complete their paperwork within three months with little hassle with the SEC. SPACs also provide significant benefits, including high-quality sponsors, private equity-like investors, capital protection in the form of redemption rights, additional upside through warrants, and a bounded 18-24 month investment horizon.
As attractive as SPACs may be, a recent article in The Economist highlighted the interesting “frienemies” dynamic that has evolved between PE firms and SPACs. SPACs are viewed as a friend when a PE firm is looking to offload one of its portfolio companies at a premium – a great exit strategy. However, SPACs can also be the enemy when PE firms are looking to purchase private companies for their new funds and find themselves head-to-head pursuing the same acquisition targets.
How does brand strategy play into all this?
The brand for both the SPAC and the target acquisition company plays a pivotal and motivating role in capturing the hearts and minds of people on both sides and, crucially, sending the right signals to investors.
In this case, the brand has to help shape understanding of the business concept and signal future potential ahead of an operational reality. All elements of brand development have to be rooted in a clear, future-based brand positioning to ensure brand coherence and consistency. However, the core components that merit particular attention with a SPAC are the name, the narrative, and the messaging.
Apart from the usual caveats and precepts about name development, your company name should be built around a clear future strategy. Take for example Richard Branson’s Virgin Orbit, which recently went public, merging with SPAC company NextGen Acquisition Corp II at a $3.7 billion valuation. Virgin Orbit is appropriately named as it provides launch services for small satellites and stays in line with its sister company and Branson’s space tourism company, Virgin Galactic. Overall, consistent with Virgin’s brand architecture.
On the SPAC side, a name that stands out among the growing sea of SPACs may also help attract the right investors and target companies, and at a faster pace. Most SPACs take on a no frills, fastball down the middle name such as NextGen Acquisition Corp, which is jettisoned like a booster rocket after launch. However, other SPACs such as NightDragon and Reinvent Technology Partners take a more distinguishing approach with a name that aligns with their investment philosophy and tells more of a story, and piques the interest of investors.
For a SPAC, the story you tell to the world – your narrative – plays a critical role in building support, confidence and investor appeal. Your narrative is your longer story of the journey you are on beyond the next acquisition or transaction. Based on a clear brand positioning, it describes and articulates your compelling vision of the future and how you intend to capitalize on the opportunity you have seen. Of course, it has to be concrete and deliverable based upon solid business and market underpinnings but, above all, it has to have emotional appeal to capture the imagination of the people who will be instrumental in making it happen.
Messaging is what you say to specific audiences in sufficient detail to make the overarching narrative relevant and motivating for them. Investors, for example, want to know why they should give you their money and what return they can expect based on the market opportunity you have seen and why and how NewCo will be the one company to capitalize on it. The metrics are important but, again, it’s about hearts as well as minds. Employees, current and future, will want to know what they are part of and where the company is going. They want to be excited about the future and part of a winning team. They should be able to describe the company and what it does in succinct, simple terms. The third key audience is customers. They want to know how your strategic vision is going to benefit them, specifically in terms of their business. They will be looking for reassurance about stability and longevity on the one hand with a sense of energy and vision on the other.
Overall, brand strategy on each side of a SPAC IPO transaction can contribute to the success or failure of the deal. Whether you’re a SPAC courting investors and target companies or a private company looking to merge or be acquired, a solid brand strategy can facilitate the perfect union in drawing the right attention and attracting the right partner on the other side.