Atlas Merchant Capital’s David Schamis Discusses Getting Into the SPAC Game
Special-purpose acquisition company (SPAC) listings hit a record high in 2020—with 165 global SPAC IPOs occurring from January to October 2020, nearly twice the number of SPAC IPOs issued in 2019 and roughly five times that of 2015. While not a new phenomenon, these “blank-check” companies have exploded as an alternative way to take a business public, with familiar sponsors that investors trust often at the helm.
“For many years, people, including me, would walk around saying, ‘I really don’t like the classic IPO process,’ yet there wasn’t a good alternative,” David Schamis, founding partner and chief investment officer of Atlas Merchant Capital, explained to Worth. “So this is an alternative; it’s a different way to take a company public. Sometimes it’s better, sometimes it’s worse than an IPO. It just depends on what the company is looking for. But it’s different. SPACs have been around for a while, but for a host of reasons, mostly structural, they were not considered a viable alternative to an IPO. Many of those issues have been eliminated in recent years, and so you have seen higher quality sponsors enter the SPAC market, with companies and business owners seriously evaluating a SPAC as an alternative to an old-school IPO.”
Schamis’ firm is one of the latest to launch its own SPAC, named Concord Acquisition Corp (NYSE: CND.U), which will focus on the financial services sector, including fintech. But unlike some of the other SPACs that may appear to be a side project for the sponsor, Atlas Merchant Capital does not plan on this becoming a hobby for Schamis or his partner Bob Diamond. In fact, they have brought on a full-time CEO, Jeff Tuder, to lead their SPAC effort and have assembled a group of 32 people who are involved with the SPAC as board members and advisors, including former New York Stock Exchange COO Larry Leibowitz.
While Schamis jokes that they are probably “six months too late” to the game, he’s quite confident that Concord will be a success. “Six months ago, if we didn’t have the right person to be our CEO, we wouldn’t have done it, irrespective of the fact that maybe the timing was better,” he explained. “Because, for things to work out, the stars need to align a bit. You need the timing to be there. But you also need the execution to be there. You can be right on timing and wrong on execution, and it’s still going to be a failure.”
When asked why we’re seeing such a huge surge in SPACs right now, Schamis said there are two main reasons.
“One, equity markets are strong. Therefore, a lot of companies want to go public,” Schamis explained. “The second reason, that is probably more important, is that doing a PIPE, as part of the SPAC merger, has become much more common, almost required. The term ‘PIPE’ stands for ‘private investment in a public entity.’ Two, three years ago, if you had $250 million in your SPAC, chances are that was the only cash available to do a deal. Today, the fact that a lot of investors out there are interested in participating in a PIPE as part of the larger transaction, $250 million is the beginning, not the end. And what happens also is, the bigger the PIPE, relative to the size of the SPAC, the smaller the cost that the sponsor of the SPAC is taking out, which makes the whole transaction more efficient.”
As far as Atlas Merchant Capital’s SPAC goes, Concord will focus on a sector that Schamis and his colleagues know well—and one that continues to grow exponentially year over year. “We have been financial services investors for many years, and it is really our main focus in life. It is a $1.5 trillion segment of the economy that is undergoing tremendous changes, so there are a lot of things to look at,” Schamis said. “In our funds at Atlas Merchant Capital, we focus more on some of the traditional businesses which aren’t always right in a public company context. For our SPAC, Concord, which is really just another way of taking a company to the public markets, growth is a key metric that we are focused on, and fintech is an area we think has huge growth potential and one we are targeting for exciting merger candidates.”