Unlike in 2019 when companies traditionally raised money through the route of initial public offering (IPO), 2020 has seen a total transformation in the United States and Jamaican markets as companies raise capital through special purpose acquisition companies (SPAC) and additional public offerings (APO).

Following the tight grip COVID-19 has had on the capital markets in the second quarter, more than US$44 billion (J$6.3 trillion) have been raised through SPAC’s as they become more preferred as seen by the near doubling of the US$13.6 billion raised in 2019 through that medium.

These companies raise money through an IPO in order to purchase another public or private company and take it public through a business combination which might be in the form of a merger. This route is seen as less tedious for some companies since they don’t have to be the direct company to go through the US Securities and Exchange Commission (SEC), are much faster and can allow for them to be more capitalised after the merger.

The largest known SPAC to be involved in the Caribbean region was the Alignvest Acquisition Corporation’s IPO which saw the company raise CAD$515 million (J$50.6 billion) in order to acquire and merge with regional insurance giant Sagicor Financial Corporation (SFC). This deal saw SFC delist from the London, Barbados and Trinidad and Tobago Stock Exchanges and become a public company on the Toronto Stock Exchange as Sagicor Financial Company. This deal saw local financial company JMMB Group Limited gain a 22.5 per cent stake in the new SFC entity after investing US$250 billion through a private placement of Alignvest’s class B shares.

Assistant vice-president of Investor Relations at GK Capital Management Ryan Strachan believes that there is a space for local SPAC on the Jamaica Stock Exchange’s (JSE) main market.

The most notable SPAC for the year in Strachan’s view has been Pershing Square Tontine Holdings which was oversubscribed at US$12 billion when the original raise was US$4 billion.

This success was the second-largest victory in 2020 for famed hedge fund investor Bill Ackman who capitalised on the market decline in early March to the tune of a US$2-billion windfall through a shorting strategy.

Locally, seven listed companies have announced their intention to raise new capital through an APO as a way to bolster their capital reserves plus take advantage of acquisition opportunities. However, Proven Investments Limited’s APO had fallen through due to the initial onset of COVID-19 while Panjam Investments Limited has decided to step back and watch the business environment for their raise of approximately US$100 million.

Despite these events, Strachan sees APO’s being important gateways for allowing new investors into companies without the need for existing investors to rescind certain rights.

Barita Investments Limited has proven this fact as they successfully raised $13.6 billion in their first APO.

This was in an environment which was devoid of any equity raises in six months since the Caribbean Assurance Brokers IPO in March.

“It is important to establish the context, first and foremost. APOs oftentimes are a means of facilitating external investments, as we would have seen with Barita and the five per cent acquisition by First Citizens Investment Services Limited via their offering. It’s less attributable to a single issue, and dependent on the entity in question. If for instance, there is a deal to be executed, I believe the transaction (APO, IPO, Rights Issue, etc) to proceed accordingly. So, to encapsulate, it is more about the reason, and less about the environment, in my opinion,” Strachan offered.

Of the two known APO’s which are expected to be published by next month, Strachan is keeping Sygnus Credit Investments Limited on his radar based on their niche in the private credit space and diversified element of offerings.

Despite this shift in capital to more established and known entities, Strachan still sees a place for the traditional IPO especially during the time of COVID-19.

“The reality is that there are holders of capital desirous of opportunities to achieve a reasonable rate of return. I expect more IPOs this year because, in many cases, the offering is more about the raising of funds (sustainable) than the movement in share price (transient). It would seem that capital is paramount and essential to the continued growth of these companies and as such, would be even more necessary now than in Q1 2020. For this reason, I expect IPOs, based on merit/necessity, to continue.”

CEO of Mayberry Investments Limited Gary Peart supports the point of a local SPAC with the key consideration being a fair price which is acceptable to both the issuer and investor. He also sees a transparent story to investors being the critical foundation for APO’s to be successful and garner the capital they desire.

Local real estate players Kingston Properties (KPREIT) and First Rock Capital Holdings are still in talks to finalise their next capital raise.

Both had indicated in 2019 publications and briefings of their intention to raise fresh capital from the equity markets through rights issues with KPREIT setting its sight on an equity target of $10 billion by 2025 while First Rock had set its sights on a US $10 million rights issue. One has indicated their preference towards an APO as it will allow for new institutional investors to become owners in their firm.