Who is SPACable? Fashion Companies in the Crosshairs
Whether it’s the return of denim or the rise of the next new investing class on Wall Street, trends all operate the same way.
There’s the status quo that’s ready to be shaken up (in the case of denim, the rush of athleisure), a catalyst for change (say, a year spent at home in sweatpants), and then an explosion that suddenly has the world lurching toward something new (again).
The difference on Wall Street — where SPACs are suddenly everywhere and racing to buyout big names — is that the dollar signs are all much bigger and the future of the companies they target hang in the balance.
And while the dealmaking market in apparel is slow, there are plenty of potential fashion and beauty targets for these new investors, from Warby Parker to The Honest Co.
Special purpose acquisition companies aren’t new, but they’ve taken over the investment imagination and are actively on the hunt for brands that might want some quick money and a backdoor to the public markets.
Call it what happens when you give former chief executive officers and the Wall Street types too much time at home with low interest rates, a hyperactive stock market and a once-in-a-lifetime business landscape that’s ripe with change and opportunity.
SPACs are, at their core, management teams without companies and a bunch of money that’s literally burning a hole in their pocket. Typically, it’s an industry veteran or two who put together a team, raise money through an initial public offering on the promise of buying a company or giving the funds back to investors in a couple years.
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So far this year, SPACs have raised over $98 billion through IPOs, on top of the $82 billion raised last year, according to Dealogic.
Among the players who are on the hunt already or preparing to launch a SPAC are former Gap Inc. CEO Art Peck and Seventh Avenue financier Gary Wassner with Good Commerce Acquisition, private equity veteran Ken Suslow at Sandbridge Acquisition Corp. (with support from Tommy Hilfiger and Domenico De Sole), Matt Higgins’ Omnichannel Acquisition Corp. (with support from Bobbi Brown), mall giant Simon Property Group, luxury titan Bernard Arnault and many, many more.
And while the launch of new SPACs may have slowed to a trickle in recent weeks from the flood seen earlier, there are plenty of players on the field. Every SPAC has its own specific strategy — they might buy a minority stake or full control of a company, effectively taking that company public. Or they might seek to invest in a number of businesses that work together on some level, creating a publicly traded holding company.
The deals are just starting to come together now, but it’s a heady combination with so much money and so many players looking to buy and companies tempted to take a quick path to an ultra-hot stock market.
Serial CEO Matthew Rubel said: “Every market has its moment of being the Wild West and so we have that moment of being the Wild West, where all things are possible. But it’s also possible that your six-shooter backfires and you get killed in the process. To navigate the Wild West you need to be thoughtful about what you do.”
Rubel, who has been CEO of Varsity Brands, Payless owner Collective Brands and Cole Haan, is now head of the SPAC Empower, which raised $250 million in October and last month made its first deal, buying auto enthusiast platform Holley.
But companies that choose to go public through a SPAC instead of taking the longer path with an IPO of their own need to be ready to be public companies.
“You have to make sure that, as a company, you have a clear story and that you have future growth, that you can articulate and show that,” Rubel said. “If you are just seeking money and you don’t have solid unit economics…then don’t go public and don’t use a SPAC.”
And being ready to be public most often means having a clear path forward since investors want nothing more than a growing company that promises to keep getting bigger, boosting profits and market share.
Michael Toure, founder and CEO of strategic and M&A advisory boutique Toure Capital, said: “SPAC targets need to approach this process with the ambition to build a $1 billion revenue brand and that the proceeds from the SPAC merger will help them get there. They need to be able to demonstrate to the SPAC sponsor and to their future public shareholders how they will achieve these results and give them confidence that they will keep delivering on this performance, which in return will keep improving the newly merged entity share price.”
Toure said successful SPAC targets in fashion would ideally show four key attributes:
• Inclusivity and sustainability.
• Strong brand and premium quality products.
• High service and a differentiated experience.
• Platform, technology and ability to scale.
As the numbers have grown in the SPAC universe, so has the scrutiny.
Regulators at the Securities and Exchange Commission have signaled that they’re keeping a close eye on the trend and this month put out a statement pointing out certain “accounting and reporting considerations for warrants” issued by SPACs.
That could slow what has been a headlong rush.
But speed is still a key benefit of going public via SPAC, since it will help a company jump into the markets when valuations are supported by a nearly 44 percent run-up in the Dow Jones Industrial Average over the past year. The index closed up 0.7 percent at 34,043.49 on Friday.
“It’s fast,” said Sonia Lapinsky, a managing director in AlixPartners’ retail practice, of going public with a SPAC. “They can move quicker and with less scrutiny. It’s relying on the [SPAC] investor to do the diligence to make sure these guys are going to come out OK on the other side and be able to perform.
“It seems like there’s a lot that could go wrong,” Lapinsky said. “But lots of people could also make a lot of money.”
Here, five companies that could pique the interest of the suddenly monied SPAC set.
A Warby Parker store. Courtesy Photo
The first-gen d-to-c eyeglass disruptor has long been seen as a candidate for the public market. It is widely seen as having the brand, scale and management team necessary to carry itself on Wall Street. Rumors have been spreading lately that the company could make its move toward the public markets this year.
The saksfifthavenue.com site.
Hudson’s Bay Co., which itself left the public markets in 2020, separated the Saks Fifth Avenue store from the saksfifthavenue.com e-commerce business this year. The web business, which was valued at $2 billion with a $500 million investment from Insight Partners, is seen as a contender in the public market, where competitor Mytheresa staged an IPO in January.
Landing page of StockX. Screenshot
The sneaker and collectibles reseller raised $275 million in Series E funding in December, valuing the company at $2.8 billion. StockX plans to use the money to drive its global expansion, innovation and category diversification — all things that Wall Street likes to see.
Jessica Alba in the Honest Beauty ad campaign. Courtesy Photo
The Honest Co.
Jessica Alba’s clean beauty company has been through many of its growing pains, but with the help of backer L Catterton, has been revving up operations and now has over $300 million in sales. The company filed for an IPO this month, signaling it’s ready to be public, and the right SPAC could be an alternate route.
Fan apparel from Fanatics.
The sports licensing company raised $320 million from existing investors last month, valuing it at $12.8 billion and fueling rumors of an IPO. Fanatics was expected to use the new money to build online and chase acquisitions. It would be a big deal, but a SPAC could help the company tap into today’s public valuations quickly.
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