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London finally gets a Spac

One scoop to start: David Cameron lobbied Lloyds Banking Group to reverse a decision to cut ties with the ailing Greensill Capital, appealing to a board member who he had ennobled while prime minister. Full story here.

David Cameron, former UK prime minister, left, contacted Lord James Lupton, a Lloyds director and a former Conservative party treasurer, in a successful attempt to persuade the bank to keep doing business with Greensill © FT montage; Getty

Welcome to Due Diligence, your briefing on dealmaking, private equity and corporate finance. This article is an on-site version of the newsletter. Sign up here to get the newsletter sent to your inbox every Tuesday to Friday. Get in touch with us anytime: Due.Diligence@ft.com

Are Spacs making a comeback?

The special purpose acquisition company gravy train has returned to the station just in time for the Thanksgiving holiday. And the UK stock market is eager to get a seat at the table.

Hambro Perks, the London-headquartered venture capital firm, will seek to raise up to £150m for an acquisition vehicle in what could be the UK’s first big blank-cheque debut since the government overhauled its rules to compete with New York’s bustling Spac scene.

The Spac will then be used to merge with a fast-growing private European tech business within 15 months, the group announced on Tuesday.

Dominic Perks, chief executive of Hambro Perks: ‘We looked at the US, we looked at Amsterdam, but London was right for us’

Behind the wheel is Dominic Perks, a former McKinsey consultant and Morgan Stanley banker who told the FT that changes to the UK’s listing rules had been “crucial” in bringing the Spacs company to London.

But those tucking into London’s slow-roasting Spac market may soon realise that blank-cheque deals are juiciest for the sponsors and Pipe investors (aka institutional investors who agreed to partake in deals through so-called private investment in public equity transactions), while retail investors are often left to sort through the bones.

In the first quarter of this year, for example, US blank-cheque companies broke records in terms of fundraising and dealmaking. But when DD crunched the numbers, 65 per cent of the deals completed in 2021 at a valuation above $1bn are trading below $10 — the price at which they were floated.

The market seemed to have caught on as redemptions from blank-cheque vehicles soared to an average rate of 52.4 per cent in the third quarter of this year amid a series of scandals. One top Wall Street banker proclaimed: “We’ll never see Q1 again, never.” 

Never say never. As DD’s Ortenca Aliaj and Miles Kruppa report in this Big Read, a new round of deals is sparking new signs of life into the market.

Chart for Big Read showing how Spac IPOs have started to rebound

Sponsors are hoping it’s a sign of a maturing market, a bit like the steady resurgence of scandal-hit junk bonds in the 1980s. 

But here’s the more likely scenario: a retreat from institutional investors over the past six months, whose Pipe investments previously turbocharged the market, means dealmakers are now forced to rely on a smaller group of initial investors who can then extract better terms.

Chart for Big Read showing Pipe commitments vs Spac deal counts

This means that sponsors may be forced to sacrifice a chunk of the huge windfalls they usually receive when a deal goes through, as private investors demand more for their money.

But even as the fine print evolves, one thing remains true when it comes to Spacs: the higher up on the food chain, the better.

Decoding the Alden Global Capital playbook

Alden Global Capital is one of two things, depending on who you ask.

Critics call it “the Grim Reaper of American newspapers”, one of several unsavory nicknames applied over the years as the secretive New York hedge fund has gained notoriety for buying up local papers and ruthlessly slashing costs.

If you ask Heath Freeman, the firm’s president, it’s the guardian angel of a dying industry. “It’s important for people to understand that we actually try saving many newspapers from extinction. And put them on a path to sustainability,” he wrote to the FT in an email in January.

Heath Freeman, president of Alden Global Capital

(Read up on Alden’s tactics in this informative long read, published earlier this year.)

Whatever Alden’s motives, the firm wields its signature slash-and-burn methods with calculated efficiency.

After acquiring the remainder of Tribune Publishing it didn’t already own in May, Alden has placed a bid to buy Lee Enterprises, the publisher of 90 daily newspapers including The Buffalo News, Sioux City Journal and Omaha World-Herald, for $24 a share.

The deal would value the Iowa-based media company, which holds a number of papers once owned by Warren Buffett, at $141m. Should the takeover prove effective, staff at Lee’s newspapers will by now know what to expect.

Alden borrows its zero-based budgeting strategy straight from the playbook of feared corporate raiders, as DD’s James Fontanella-Khan explains in this video: sell prime real estate to recoup the purchase price of the papers, relocate the newsroom, then slash costs by cutting jobs and other resources.

Video: Are investment groups killing US newspapers?

The hedge fund has now become the second-largest owner of newspapers in the US, second only to USA Today publisher Gannett, which it failed to acquire in 2019 when the publisher claimed it was not a credible buyer and had undervalued the media group.

And it’s not the only player in the game, as local newspapers have become prime pickings for hedge funds and private equity over the past decade amid shrinking print advertising revenues and the growth of online media.

Private equity firm Cerberus Capital Management served as Alden’s financial backer in the Tribune takeover among other transactions. More private lenders could soon follow suit.

The Time Warner fee machine

AT&T’s purchase of entertainment group WarnerMedia back in 2016 turned out to be a costly mistake for the telecoms company. But for its bankers, the decision to buy and sell the media company unexpectedly five years later has proved highly lucrative.

Investment banks netted more than $320m from the sale of WarnerMedia to Discovery earlier this year, and some of the same advisers raked in big fees from AT&T’s ill-fated 2016 acquisition, too.

Take New York-based Allen & Co. The secretive boutique bank, which doesn’t have a website or an in-service public phone number, received $75m from Discovery for working on the merger. Five years earlier, the bank made $50m from the other side of the table — for advising WarnerMedia — then called TimeWarner — on the sale to AT&T.

The deal combines Discovery’s content with prized media assets including the HBO network behind the TV series ‘Succession’

Other banks involved in creating the world’s second-largest media group include JPMorgan Chase, which earned $15m for advising Discovery and a further $140m for financing services. In 2016, the Wall Street firm netted about $32m for advising AT&T.

The transaction will combine Discovery’s brands, which range from nature to history, with prized Hollywood media assets including the HBO network behind TV series Succession, the Warner Bros studios, and television channels including CNN.

AT&T’s deal with Discovery underlines how rapidly traditional media groups are rushing to compete in the streaming wars. The fees generated by investment banks highlight the rewards on offer for doing and undoing deals for clients.

For the bankers, the outcome doesn’t matter much. In the words of Succession’s Logan Roy, “money wins”.

Job moves

KPMG’s 582 partners gave Bina Mehta their ‘overwhelming support’ by voting in favour of the extension © Chris Lobina
  • KPMG’s partners have voted to extend the tenure of Bina Mehta as chair of the UK firm until 2024 as it seeks to move on from the exit of her predecessor Bill Michael, who resigned after telling employees to “stop moaning” about their work conditions during the coronavirus pandemic.

  • Lazard has entered into an exclusive M&A partnership with Independence Point Advisors, the newly launched investment bank founded by industry veteran Anne Clarke Wolff. Before launching IPA, Wolff held senior roles at Citigroup, JPMorgan and Bank of America.

  • Vanguard has elected Tara Bunch, Airbnb head of global operations, to its board of directors and its board of trustees of each of the Vanguard funds.

  • Deutsche Bank has named James Liddy as head of gaming, lodging and leisure across Europe, the Middle East, and Asia, based in London. He previously held the same role at Moelis.

  • Clifford Chance has hired Paul Seraganian as a partner in its US tax, pensions and employment practice, based in New York. He joins from Osler, Hoskin & Harcourt.

Smart reads

Keeping it in the family With a $208bn dynasty on the line, Asia’s richest man Mukesh Ambani leads the region’s new class of tycoons in hatching a succession plan that transfers the reins to his children without placing his empire at risk. (Bloomberg)

Playing dirty For years, Qatar enlisted an ex-CIA operative to spy on football officials in an effort to win the 2022 World Cup. It’s not the first time US intelligence officials have been scouted by foreign governments with questionable motives. (AP)

Alternative alternatives A new legion of investors is looking to replicate private equity strategies in the public market. Whether these so-called PE-lite funds can take on the $4tn buyout industry remains unproven. (BBG)

News round-up

The ‘Tesla-financial complex’: how carmaker gained influence over the markets (FT)

Apple sues Israeli spyware group NSO (FT)

Getir snaps up Weezy as competition in grocery delivery intensifies (FT)

Mishcon sued for £2.9m after family dispute (FT)

Aareal/Centerbridge: a softer, kinder type of private equity buyout (Lex)

Martin Gilbert battles rival in effort to take over River and Mercantile (FT)

Atom Bank moves to four-day work week without cutting pay (FT)

Venture capital funds pile into India’s start-up scene (Nikkei Asia)

Binance in talks with sovereign wealth funds as it seeks investments (FT + Lex)

China intensifies crackdown on celebrity culture and fans (FT)

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