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Are SPACs the New IPO? Lulu Chairman and KKR Jump on the Trend: Week Ahead

The SPAC, or special purpose acquisition company, boom is finally garnering interest from fashion and retail, with possibly more to come in the weeks ahead.

Private equity firm KKR and Lululemon chairman Glenn Murphy are looking to raise up to $1.15 billion through a SPAC called KKR Acquisition Holdings I Corp., according document filed Thursday with the Securities and Exchange Commission. The preliminary prospectus said that Murphy will serve as the executive chairman and CEO of the SPAC. Two others on the board are from KKR.

The KKR prospectus follows the SPAC filing sponsored by Simon Property Group last week.

SPACs raise money through an initial public offering and typically have 18 to 24 months to find a company to buy, or risk having to repay investors.

The KKR filing said the SPAC doesn’t yet have any specific targets for an initial business combination, and will not be limited to any particular industry or geographic region. The filing stated that the “consumer and retail landscape remains dynamic as demographics and consumer preferences continue to evolve and e-commerce continues to increase in importance. We believe this backdrop will create opportunities to invest in distinct brands and defensible business models where we can create value by improving operations and strategically re-investing in businesses to drive long-term growth.”

Among the key investment themes cited for the KKR SPAC were digital transformation and e-commerce adoption, health and wellness, “value and premiumization” as consumers bifurcate their spending, prioritizing experiences over things, and sustainability.

The SPAC also said that the pandemic has brought fundamental changes to the consumer landscape and created new investment opportunities. While KKR believes that overall deal activity in the private equity market has “generally declined since the onset of Covid-19,” the company “has actively deployed capital to take advantage of these new opportunities,” the filing said.

So, why not a traditional IPO and how is merging with a SPAC better? A traditional initial public offering could take close to six months to put together, and then there’s the investor roadshow. It takes less time to prepare a SPAC—more like weeks—since it doesn’t yet have any operations and no financial statements to include, making the entire process easier and less cumbersome.

For private firms, going public through a SPAC merger poses less risk than the traditional IPO route. “SPACs take the risk out of the IPO underwriting process,” wrote Joe Conti, head of corporate actions, capital markets, at EQ, in a primer on the Equiniti website. He explained that traditional IPO pricing incorporates a bit of volatility in pricing, which in turn could impact whether or not a company goes public. “The SPAC make sure that enough money has been raised for a successful acquisition,” he said.

The concept of a SPAC isn’t new, and some think the costs could rival those of traditional IPOs.

Joining the SPAC craze is former Trump Cabinet member Wilbur Ross, who served as Secretary of Commerce, along with the co-founders of BroadPeak Global. They filed to raise $345 million through Ross Acquisition II, with Larry Kudlow, who served as director of the National Economic Council under the Trump Administration, as a board member. The SPAC will fund acquisitions in auto, energy or other sectors undergoing disruption from the “fourth industrial revolution.” Before he became Commerce Secretary, Ross headed investment firm WL Ross & Co. Although it was best known for investments in bankrupt steel companies, he also acquired bankrupt Burlington Industries and Cone Mills to form International Textile Group, which was sold to Platinum Equity in 2016. The Cone mill operation shut down in 2017.

Celebrities are getting into the act too, with former New York Yankees star Alex Rodriguez joining hedge fund Antara Capital to raise $500 million through a SPAC called Slam Corp.

And WeWork is eying a deal with a SPAC to take itself public, according to the Wall Street Journal last month.

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