The SPAC bust offers a second chance for early career executives

When the SPAC boom took off, you could almost see the dollar signs in executives’ eyes—a huge payment after a fixed period of time, the chance to delve into the world of public money, and the entrance into the market at a high. While some didn’t see the payday, they enhanced their market attraction.

To review, a SPAC—or special purpose acquisition company (also known as a blank-check firm)—with a limited life span of two years, created to raise funding via an initial public offering, so it can merge with or acquire an already-existing company, kind of an end around to the traditional IPO.

They’re not a new economic entity, but became extremely popular between 2020 and mid-2022: According to the Harvard Business Review, in 2020, more than 50% of new public companies in the US were SPACs.

For those once-hopeful SPACs, the market started to trend downward late last year. And not all SPACs had managed to deSPAC (say that five times fast) before the crash. “By the end of 2022, approximately 350 SPACs (with $96 billion in raised proceeds) faced a 2023 deadline to acquire a target,” according to a January analysis by Boston Consulting Group.

DeSPAC-ing, or reverse-merging, comes with a big payout for executives in the company. However, if they don’t do so in time, they have to pay back investors, with interest, on the loan given at the time of IPO.

“There were so many private equity deals done in 2021, and the latter half of 2021. [There] were so many SPACs,” Jim Lawson, co-leader of the Russell Reynolds Global Financial Officers practice, told CFO Brew. “A lot of those companies, the economics just aren’t where they thought they would be right now—not to say that that’s not going to work itself out.”

But a CFO may look at a company’s situation and decide to move to a different company, Lawson added.

“The key component for compensation for a lot of these executives was the ultimate liquidity event when they can dispose of the stock that they received as compensation,” Steven Canner, partner at Baker McKenzie and the group’s co-chair of the New York and Miami transactional group, told CFO Brew.

He said the executives in question may not receive the windfall they expected, due partly to various proposed regulatory actions by the SEC, as well as other market factors.

But even though their pockets aren’t filled to the brim with realized stock gains, these executives are now able to enter an employment market with a great need for ripe CFO talent, Lawson said.

Canner told CFO Brew that many executives were attracted to SPACs because it provided an opportunity to acquire equity that looked like it would become liquid in a short turnaround period. While their stocks weren’t largely bought up, they ran through their trust account funding which could have funded the next round of growth in the event of a tight market, he said.

And, there’s forgiveness for those executives out there—in fact, it could even boost their resumes, since they were involved in extremely complex transitions and essentially working two jobs to run the business and align a deSPAC within a short window period, Canner said.

“That is a great experience,” Canner remarked. “In fact, it probably enhances their marketability, I would think, to the next employer. They’ve seen a lot along the way, as a result, they’ve dealt with financial engineering.”

A prospective employer isn’t likely to look at a CFO’s SPAC experience as a black mark on their résumé, quite the contrary, according to Lawson. Especially for those who already had 10 or 15 years experience in finance, “the story is easily explainable: I joined this SPAC. It was heading the right direction. And the general equity markets are down,” he said.

Lawson said that his clients (including several large private equity firms) normally wouldn’t want to look at somebody that has only been in a company 18 months. But they’re giving a pass to SPAC executives because everyone is aware of how the markets suddenly took a dip, leading to SPAC executives landing great post-SPAC positions.

CFO Brew checked on other SPAC busts and successes:

• Stephen Morana, who was CFO at Cazoo, a British platform to buy and sell cars, moved on to working part-time as a partner in a VC firm, KM Capital, according to his LinkedIn.
• E-sports entertainment company Faze Clan—a 2022 potential star according to Dealroom—saw its CFO, Amit Bajaj, depart in May 2022 as the SPAC merger was developing. His next move is yet to be announced.
• AEye Inc, a motor vehicle manufacturing company, saw its share price fall over 90% since its listing, according to Nasdaq. Its CFO Robert Brown has stayed loyal to the manufacturer, still serving as finance chief and joining mobility tech podcasts.
• Chamath Palihapitiya, once known as the SPAC king, pulled out of two of his SPAC deals last fall as he struggled to find attractive assets.

If any of the bust SPAC CFOs are looking to make their next move….“the executive team at these SPAC companies [were] in large part a victim of the circumstance; they shouldn’t be tagged with responsibility for the lack of success of the transaction,” Canner said.—KT