After decades of obscurity, special purpose acquisition companies, or SPACs, suddenly became the hottest trend on Wall Street at the start of the decade. In 2021, SPACs raised 40 percent as much value as traditional Initial Public Offerings (IPOs). But by 2022, the boom had fizzled out and retail investors were left feeling like bag-holders. Is it time to write off these vehicles? One firm says not so fast.
Austin-based SilverBox Capital hopes to change the industry’s perception by simply focusing on better targets. “There are probably some great ideas that should be funded, but they shouldn’t be funded in the public markets,” says Joe Reece, SilverBox’s co-founder and co-managing member. “We’re not venture capitalists. We’re happy to bet on execution but we won’t bet on technology. We won’t fund things that are unproven.”
Reece goes on to explain that the team’s ideal target is either profitable or has positive Ebitda, however they will consider companies that don’t meet this target if they can verify a genuine path to profitability.
SilverBox’s focus on profitability pre-dates the SPAC boom-and-bust. Their first SPAC, Boxwood Merger Corp., completed an acquisition of engineering services firm Atlas Technical Consultants in February 2020. The company reported adjusted net income of $17.2 million and adjusted Ebitda of $87.2 million in its most recent quarter.
The firm announced it was being acquired by GI Partners for $12.25 per share – 26 percent higher than its first day of trading on the Nasdaq. By comparison, the average SPAC listed in 2020 had lost 55 percent of its value by 2022.
However, the company’s next SPAC completed its acquisition of Black Rifle Coffee Company in 2022 and is trading significantly lower since then.
“We have a ton of confidence in Black Rifle”, says Steve Kadenacy, who co-founded and co-manages SilverBox along with Reece. “Ultimately, investor returns will be quite high because the company is doing great. It’s grown over 100 percent in retail alone.”
Meanwhile, SilverBox recently announced a third SPAC – Silverbox Corp III. Kadencacy and Reece say potential targets are in the consumer products, financial services, fintech, engineering, construction or clean energy industries. “The thing that all of these have in common is that somebody on our core team or someone on our advisory board has deep domain expertise [in these sectors].”
SilverBox’s focus on profitability and staying within its circle of competence could help differentiate its upcoming SPAC from the rest of the industry. As for the industry’s outlook, Reece believes it will be determined by the market and not by regulators.
–Vishesh Raisinghani
