Why Founders Should Consider a SPAC Instead of a Traditional IPO | Peter Wright

Michael Blankenship: Yeah. Mike Blanks up here with the SPAC podcast. Today I'm joined by Peter Wright. Peter, you want to give a little quick background about yourself? 

Peter Wright: Fantastic. First of all, thank you for having me. Mike. I am a SPAC enthusiast. I'm a, I'm actually a research analyst. By background. I was a cell site analyst for about six years, covering semis at CIBC.

I was, buy-side analyst covering semi and emerging tech for a similar time, director of research for a couple years. Then I re ran research sales in Boston for Cantor which is my first intro to SPACs. For a couple years, about six years ago, started Company Intro Act which was really focused on investor readiness and helping both private companies that wanted to become public and smaller companies become more institutional.

Little did I know I hit the SPAC boom perfectly. And so over the last five years we've been service. Providers, we've been finders on a couple occasions. We've raised capital through the broker dealer, and we've been capital markets advisors research reports and the like for about 30 over 30 SPACs over the past five years.

So we've been commercially involved with many and August of last year we launched McKinley, which is the second belay spec out in the marketplace. And, that's what I've been up to. 

Michael Blankenship: That's great. I'm, what a history to go from being a research analyst to now on the SPACs. That's a great journey.

When I've been in the SPAC game for a little while myself, but I'm just curious to get your take on and this is probably part of your talk now when you talk to targets, but what's the. You know how if I'm a founder of a business and I do want to go public like that is in my DNA, that I want to be, that what?

Why should they consider a SPAC versus sort of a traditional IPO? 

Peter Wright: Yeah. We, we say that first of all, different strokes for different folks, and we would be the first to say that there's some things about a traditional IPO that are better. There's some things that are better in a reverse, there's less things that are better in a direct probably.

But they, we, they, the SPAC is definitely one vehicle that should be evaluated. We say it's better, faster, cheaper. And how, what do we mean by that? So better is really around the keyword certainty. A SPAC brings something very special to a founder, which is certainty.

It brings deal certainty. So once you sign that BCA, which is really before you put any risk. Capital time, anything into a deal, you're gonna have deal certainty. You're gonna have a SPAC platform there that can be guaranteed. There only about 40% of companies that file an S one and anticipated traditional IPO successfully close that, that IPO.

Some of it are success stories. They get bought out or done in different ways, but often it's just too long of a process and they take their eye off the ball and timing is just tough. Deal certainty is one. Valuation certainty is the other. So at the time of the BCA, you're locking into a valuation set by you as the founder and the SPAC sponsor different from a traditional or a reverse, where if the market determines the valuation.

And the third is capital certainty. And this is not. Uniform across all SPACs, although it's up to the founder and the founder could the of the target could definitely say, I want capital certainty committed before I sign, the BCAA pipe a in advance. I don't wanna just bet on the trust. It's better in the way of certainty, deal valuation and capital certainty.

It's faster. This one, people know, it's from that BCA, you're about six months away from being a public company. Traditional IPO is about 18 months. So the whole front end of the process of creating the shell's already done for you, really at the time of the BCA, the SPAC is raising a lot of the capital, for you whether it be going out to the trust investors and converting 'em.

Or whether it be raising, the pipe with their bankers and cheaper comes in the way of the way we think of it as cash versus stock. So a traditional IPO, you've gotta, you've gotta have cash. You've gotta have enough cash to pay your own way through that process over that 18 month period of time.

And a SPAC is the one who's paying the working capital and the bills to get you through. So you pay them in stock. They do take a premium when they take stock for cash. But that's the way a SPAC works. So we look at it and we say, for companies that are really sub 5 billion, definitely sub 3 billion, we'd say a SPAC is a better, faster, cheaper alternative to a traditional IPOI.

Michael Blankenship: I completely agree. But, there has been a lot of market misconception around SPACs and part of getting folks like you on the podcast is to get rid of that misconception. But what do you see as the biggest misconception right now as a spac, especially as a sponsor out looking for targets?

Peter Wright: Yeah. I give you a couple misconceptions. One big misconception among targets is the name. Acquisition is misleading. So a special purpose acquisition company, everybody thinks we're buying the company from them. So if you're looking to get bought out, a SPAC is a horrible vehicle for you.

Private equity or a strategic is a better option for you, but if you're looking for growth capital. If you're looking to become a public company, why are you doing that in the first place? You wanna be a public company because you're gonna get access to more abundant capital at a cheaper cost of capital because the liquidity premium that happens over time.

So you're accessing that capital really for, to grow your business organically and inorganically. So we look for founders that, that fit that profile First of all. And so anybody who's thinking to cash out at the time of a spac those have caused some of the bad performance in SPACs.

For guys that just don't understand the vehicle and have gotten into bad deals in the last cycle. There was, unfortunately just saturation 900 SPACs were created in less than two years. There's over 600 SPACs looking for a target at one point in time. Four years ago that resulted in the last cycle having a lot of deals that never should have been public.

There were smaller deals, the SPAC was too expensive, middlemen were all making a lot of money. And so investors were very jaded. Interestingly, risk capital has been a pretty good performer. The same guys that did risk capital back then are coming back to the. To the this cycle because they, they did just fine, in the last in the last round.

And that's tho those are good returns. Trust guys. Also, when you look at the structure, trust guys for the most part are redeeming. Then we could go through that structure if you wanted. I don't think that's changed yet. I'd love that to be changed, but. For misconceptions. I think it's that we're not really an acquisition company.

We're a capital market strategy to bring you growth capital. And the fact is that the money that goes to the balance sheet is very little to do with what the SPAC did in their original IPO. The trust is icing on the cake. It's a great thing to have there. It's a very efficient tool to go up to market when you bring a spor, a story and validate it.

But for the most part, I think the better deals are happening through. Pipes or through the other types of financings, not relying, on just the in inherent trust capital. This is always what I say. When you're a company, any company out there, if I had 20 investors and I said, you can only pitch these 20 investors, how confident are you that you're gonna find a match?

What if I told you 70% of those are running fixed income portfolios Now how confident are you that you're gonna be able to find a match? So it's very difficult to just look at the trust and try and figure out who's gonna match up with you. So as a spec, a sponsor, we are not afraid to raise capital.

It's what we've done for a living and we're not only looking within our trust to solve for that problem. 

Michael Blankenship: Yeah. Let's talk about your SPAC for a second. So who are you? You know the much can say, so what are, I know it's out there. So what are you? Targeting, how are you looking at financing? 'cause pipe obviously can be the incremental capital, but there are other ways to your point, 

Peter Wright: surely.

Yeah. 

Michael Blankenship: And certainly pipe is a way to validate the valuation that you all as a sponsor group would put out there, different than just a fairness opinion. Provider. Really the ones who can invalidate the most are the ones who are gonna give you the money. So 

Peter Wright: putting the money in one value.

That's right. 

Michael Blankenship: Yeah. So how, what are you guys looking at and what's, what do you see as the hot sectors this year and just curious on the, on your front, especially coming from your research days too. That's pretty, 

Peter Wright: yeah. We look at progressive companies and progressive industries and so really.

Growth companies that can make a difference when they access abundant. Capital at a cheaper cost and they can dominate a market. So progressive industries are really the industries within every sector that are the fastest growing and typically consume the most amount of capital. So within industrials it's space.

And Space Tech. Within financials, it's FinTech within consumer discretionary, it's EV and mobility. So it's fairly obvious the spaces that we're looking at from an industry perspective. Then what we're looking at is underneath that progressive companies and so progressive companies have better than market growth trajectory.

They have positive incremental margins and what that is really a test of scalability. As you grow, do you become more profitable inherently without any secret sauce or special management teams required? That's an ingredient that we look for. So if you've got gross margins of 40%, but for every incremental.

Dollar you sell, you got 60%. That's positive incremental margin. So that's what we're looking for is names that scale and generate alpha with that. And then the third thing we're looking for is capital efficiency. So a company that has passed their hockey stick, the most expensive capital is behind them.

In kind of their cap stack and the next round of capital that we're providing that to them is gonna be at a better deal than what the capital was that's already in them. Which is a good thing for them because what that means is multiple expansion. And so that's really the arbitrage that happens in a spac.

To begin with anyway, so that's that's what we're looking for is a progressive company. Size wise, we're looking for about a billion dollars. The rule of thumb is five times your trust. So at 172 and a half, about eight 60 is our magic number where it's our promote is reasonable, on, on kind of the cost.

At a billion dollars we're, we're attractive anything north of a billion dollars. Our SPAC is a very attractive vehicle, sub 500. Our, we either have to give up some of our promote shares or it's gonna be a very dilutive, expensive deal. One of the two. So we're aware of, those parameters.

Originally we weren't looking internationally as a benefit. We were global. We were open to anything as long as they have a US footprint and are relevant to US investors with the weak dollar. We are a little more favorable these days towards international names just because the positive revision cycle that's happening to their earnings on a debasement of the dollar space is hot.

We like the space sector a lot. We think 26 is gonna be a good year for space. The commercialization of it, the big beautiful bill had some money allocated to space port bonds, we think that's the first of those are gonna click off this year. SpaceX could potentially IPO in the back half of the year.

There's a lot of catalysts. A lot of the companies that were actually SPACs three years ago have gone from ugly to now all of a sudden making money. Space is a good space. No pun intended or pun intended to be in, for SPACs this year. 

Michael Blankenship: Next Frontier. 

Peter Wright: Next Frontier. 

Michael Blankenship: Yeah, I, I.

Definitely think space is out there. There's just a lot of exploration to be done and people are certainly interested. 'cause again, it all matches up with data and everything you need up there too from satellites and everything else. So certainly a hot sector. I guess you, you mentioned you're looking at the kind of foreign or potential non-US trade there.

We certainly work on quite a few of those. Work on a lot of us ones as well. Are there particular areas? Are you talking Europe or South America, Canada. 

Peter Wright: We have finders that we work with the, bank of 'em as, as bankers for the most part, but we've got finders in Latin America.

We think Latin America is gonna go through a big renaissance with the supply chain shift to the west. But Venezuela, as part of that, we're not looking in Venezuela per se yet. Maybe on a couple SPACs from now that'll be ready. But Chile the political front, Latin America's just gotten a lot more stable.

So we recently were touring through Chile and met some great targets down there. We like that economy. We like that political risk and profile quite a bit. We, we have seen some things in Asia that are great. When you go to Asia, the one thing that we don't want to do is there's some great businesses that have great growth stories.

The problem is we don't want to bring an orphan to the us So we're the challenge is finding an Asian business that has some relevance to the US marketplace which is, a filter that we have on top of it. And Europe has had a couple, so we've hit several.

We've, Australia, we've got a target that we've actually looked at. We are. That's, that one is a reach one, but there's, there is even been in Australian one in our, 

Michael Blankenship: we got a couple mining ones out of Australia. 

Peter Wright: Exactly. You can imagine that's probably a mining deal.

Yep, that's 

Michael Blankenship: right. Yeah. And actually in Africa too. So we're looking at that. So the mining, we 

Peter Wright: haven't seen Africa yet, so you're ahead of us. On this go around. 

Michael Blankenship: Yeah, we got a couple, but that we'll work on. We'll see. Rare arts is a big deal right now, 

Peter Wright: obviously. Yeah. Surely. Yeah. 

Michael Blankenship: Trying to get into that.

From a, your perspective on the SPAC sponsor, how do you view that? Is it operator what do you tell the target that, Hey, pick us over this other sponsor. What, how do you differentiate there? 

Peter Wright: So we we're generalists on the industry, so you could assume the very last thing we're saying is we know how to run their business or have friends that we can bring in to run their business.

They've got better friends than us in that world where we shine. And what we have done is execute on 30 SPACs in different capacities. So if you want to de-risk that transaction and bring a capital markets advisor in. That is transparent, that is gonna do this on a platform basis and build a reputation for standing by the companies they work with.

We're a good partner. We wear it on our sleeves. We go on shows like this and say, we are not shy to commit to capital before we do a deal. The reason for that is quite honestly. Those are the better deals, at the end of life of a spac, if unfortunate things happen, I get it. Different things happen and you gotta, you've gotta follow a different path.

But for the most part, the more certainty you can bring to a deal and the more clarity you can bring to the valuation and more you can validate it in the marketplace as you pointed out, with the pipe, the better it is for the deal and therefore everybody 

Michael Blankenship: Yeah. 'cause it's gonna be accretive.

I guess let's talk about dilution though too. If how do you view that and, allay some of the fear from the targets? 'cause they're, especially its founders, right? They don't want to be diluted too much. How do tell them that you're an operator? How would you tell a founder to think about it?

Peter Wright: Yeah. So I would like to give advice that I would receive and contemplate as well. So one of the things that we did in our spac, which hasn't been as popular as I thought it might be, is we're a right spac instead of a warrants incentive. And warrants the problem with warrants.

There's a couple problems with warrants. It's phantom dilution, out there. But it works in all the negative ways. And the way that I think about it after looking at all these d specs over the last couple years is if you've got 20% dilution at 1150, who in the world is buying the stock at 10 bucks?

Because as soon as you buy it to 1150, it's nine 50. On a realistic basis. So you gotta be thinking it's going to 14 bucks to rationalize buying a stock at $10 when you've got 20% dilution hitting at 1150 warrants. So if no one's buying it at 10, who's buying it at eight? If no one's buying it, eight, who's buying it at six and warrants?

Just create this ugly slide all the way down, which is what we experienced in the last. Cycle, which is one of the big problems. So buying out warrants and figuring out how to clean up your cap structure is one of the things that has been sought after. The other aspect of it is it attracts the wrong type of investors.

So having a big warrant pool relative to your float is. Just a structured investors' traders' dream. So you're not really attracting the fundamental long-term investors. You're attracting traders and shorters into your stock just because of kind of the structure of your float. So rights have no phantom dilution.

Our goal is to come to a deal and say, we are gonna bring one flavor of stock. You might have other flavors that we gotta work through, but we're gonna come with one flavor. Common stock, to the table. So all of we don't have any warrants in our entire structure, whether it be on the trust side, whether it be on our side.

There is no warrants at McKinley. And so when we merge with that company, we're gonna be bringing, shares dilution shares, no further dilution shares. And so we got negotiate a better deal upfront. The other advantage of rights is that dilution is not all equal. There is such thing as good dilution, and the good dilution is flow.

So are you willing to dilute yourself a couple percent to create a little more of a trading float in your name? Initially you should be, because that's what's gonna get your shares trading in a richer multiple on the liquidity premium. That's what we believe rights are doing, and so the, the SPACs that have chosen the rights of bought into this mindset and it's yet to be proven.

We'll see how it works, but having a richer float. And getting rid of that warrant cloud is one of the choices in dilution that we have made that we think is gonna play well, in the marketplace. The other thing is that the dilution you're paying for is really capital markets advice.

So the way that we do look at companies is how big is the private to public? Multiple ex arbitrage or multiple expansion that you're getting outta the gates. Realistically, not ar arbitrarily decided, but realistically, what is your peer companies that are public trade relative to where you and your other private peers trade?

And the way we look at that is it should be roughly 50 50. So that's what you're giving up is we're gonna bring you in, we're gonna make it very efficient for you to. Get that benefit, but we're gonna take half of that that premium that you get. So if a private company trades at six to eight times whatever company industry that we're talking about, and the public peers traded, eight to 10 times split the difference, nine over seven is more than a 20% premium.

So we should be roughly 10 ish percent of that. Piece and we try and cap it at that's that number that we were talking about at about eight 30. That's right where the PAC becomes less than 10% dilution in the deal. And that's a very stomachable, palatable solution we believe to tell a founder that, if we're taking a single digits and we're giving a capital market strategy, we're helping you, grow your valuation by over 20% and we're gonna be there supporting you.

We're cash in stock out. We're not stock out for a couple years after we put the cash in. We're friends, love you to get you a lot more successful than you are today. 

Michael Blankenship: Yeah. And one other benefit in the rights that you may not have experienced just yet is, typically at the end of the process, you need round line holders.

Peter Wright: Yes. 

Michael Blankenship: And if you were to have higher redemptions than you expect, you may not have the number right around that holders. Nasdaq, those will be counted in there on the rights versus warrants. Warrants obviously aren't counted, but the rights, if people, you can bring that in and have that allowed to be part of that process, at least today, is nasdaq.

Yeah. NYC is different, but it, that's at least the benefit of having that. So I've certainly. I heard that between the rights and the warrants and how try to avoid the dilution, especially having the, the warrant and having an anchor on your cap table to your point.

Yeah. So look, I think SPACs going forward this year, like what is your sort of prediction for 2026 and how do you see, how many do you think? I know still estate's coming up. So we're gonna see a lot more of those. IPO, I know I have several. What are you seeing? And by the way, there are a lot of no reviews from the SEC coming out.

Yeah, which just means I think in the government, we'll probably, it will be open and ready to go and the SEC needs a massive backlog cleared out. So I don't know. What are you seeing for this year? Kinda going forward? 

Peter Wright: Yeah, no, I think these the no comments are interesting because it does in some ways challenge the value of the spac.

Sponsor, that it's gone through that process. So one of the things we, all legacy sponsors did is they went through all that work for companies. So what is an what is an estimation? You have good 

Michael Blankenship: advisors, right? Good 

Peter Wright: lawyers, good orders. Exactly. And there's a couple guys that, that is part of it.

I think there's a couple law firms that dominate the league tables for these SPACs. So they, the book gets easier once they've done, a couple hundred of these things in some of their cases. It does get easier for the SEC to say, okay, it's the same legal advisor, same advisors, putting this stuff together, different numbers, different bios on the managers, but for the most part it's the same deal.

Michael Blankenship: Yeah, 

Peter Wright: I think I think the year let's say that the year started with a hundred, and I don't have the exact number in front of me now, roughly 120. Searching SPACs, at the beginning of the year. We look for the market to be as close to equilibrium as we can. We think this is gonna be a deal heavy year, so a d SPAC heavy year.

So a lot of deals are gonna get announced this year. We actually see it in our flow. Just the number of companies that we are seeing. There is a little bit of cyclicality to that. It's pretty heavy right now. We're seeing a good amount of deal flow right now. It's not that hard for a SPAC manager to find a deal.

A quality deal is always tougher, benchmark. But there's a lot of guys out there that want a shell and want to a spac, to partner up with the SPAC right now. I'll put it this way, there's points in time when SPAC managers aren't getting a lot of inbound calls. From companies.

This is one of those times that you're actually getting inbound calls from, target companies that are looking to go public and find a spec. So that's an interesting dynamic. So I think that 26 is gonna be a good year for deal flow. I think that, I think it's gonna be, 80, 80 plus deals will get announced.

I think that we'll Peter out here, we do have a lot of backlog. I think we're gonna overshoot, so equilibrium for me is about a hundred to 120 SPAC searching at any given point in time when we get much more than 120. We have too many SPACs in the marketplace. I think we're gonna overshoot a little bit in the first half of this year.

But it might peter out as the repeat SPAC sponsors continue to be there and the, the guys have just rushed to get something done when it was easier. I think those guys will fade out a little bit. But I think I think that's what it's gonna look like.

I think we will probably peek out at about 150 searching. In the spring and about 80, 80 deals through the year we'll come and keep that number, at, about that level or lower. That's wishful thinking. Maybe I'll tell you one thing that I'm where I could be wrong on that. Is where all those DATs happened last year.

So all of these stats that emerged do they start competing against SPACs because some of them, married up with broken companies and said, ah, we don't need the broken company. We got, trust and it's all about the trust. And that's a broken strategy. So do they upgrade and do they start competing with SPACs to upgrade and find targets to better fit into.

Their trust strategy, that's a more difficult concept. I think SPACs have a lot of benefits versus a debt, that doesn't, that wants to marginalize 'em out of the gates. But it's it would create a little more competition, out there if these stats start looking for targets.

Michael Blankenship: Yeah. I won't hold you to the 80 for the year but we all, we have the tape so we'll back year. What do you think? You think are back on? 

Peter Wright: You're 

Michael Blankenship: under? No, I'm not under I think it'll be around that and there's plenty of good companies out there that will transact. There's a lot. A lot in the as I say, energy adjacent companies where those are a hot sector to your point on the progressive, those are ones certainly other SPACs are interested in and especially ones that are industry agnostic.

Peter Wright: Yeah, 

Michael Blankenship: you'll see a lot more kind of growth there. So I think, I don't think you're far off. There's enough out there right now. There's enough paper out there to trade on that. So it, we'll continue to see more, iPOs in the next few months, but the ones that are out there, I think we've cleared out a lot of the stuff that's been out for two plus years, going on to three years before it's delisted.

So I think you're on point,

Peter Wright: yeah. No, I think I think you're right.

Michael Blankenship: Last question. So where'd you guys come up with how'd you guys think the name at McKinley word and belay. Where did those names come from? 

Peter Wright: Yeah I'm from Alaska. I was born and raised in.

Anchorage, Alaska. So every day when waking up I, I look at McKinley and aspirationally, it's the northern star. You look north from Anchorage and there's Mount McKinley on almost every day. So that was the choice of McKinley. But belay is as the. If you're a mountain climber, the belayer is the ropes person, the one who's helping you manage climbing a mountain.

So helping you achieve the peak, but also mitigate risk along the way. And so that's really the analogy to what we do with SPACs. So you're climbing a mountain in your migration from private to public. We help you achieve the peak, and we de-risk you is really what this platform is all about.

Michael Blankenship: Awesome.

I. I really enjoyed the conversation here, Peter. It's been a pleasure to talk about SPACs and sort of growth and certainly hope you guys find a, and I'm sure you will an amazing target soon and have you back on and on that prediction, have you back on the other year and we'll go from there.

So 

Peter Wright: that sounds wonderful, Michael. Thank you so much for having me. 

Michael Blankenship: Yep. Mike Blanks with the Fact podcast. Thanks again, Peter. 

Peter Wright: Thank you.