What college football can teach SPAC sponsors
They say that the day you sign a client is the day that you start losing them.
Two great examples of this truism can be found in:
- coaching a college football team; and
- sponsoring a special purpose acquisition company (SPAC) deal.
What sports fans see on the field is a tiny fraction of the behind-the-scenes effort (ie, coaching, institutional knowledge, team building, game plays, health and fitness). It is not much of a stretch to say that 90% of a football team’s value is invisible to the untrained eye.
SPAC sponsors are similar. They do a lot of work behind the scenes, trying to frame a target company’s intangible assets in a clear and positive way to keep investors on board. The moment of sale (game day) is the tip of the iceberg in the SPAC sponsor’s role.
College football and SPACs can learn a lot from each other.
The 2021/22 college football season saw over 3,000 players hit the transfer window and the new season’s transfer activity is already off to a furious start. Since the portal opened on 5 December 2022, more than 1,000 players have already put their names on the list.
A similar flurry of activity is occurring in the world of SPACs. In 2022, more than 80 SPACs either liquidated or announced their intentions to do so.
Recruiting is the lifeblood of college football. Unlike in the National Football League, college teams turn over about 25% of their roster every season. This means that they need to find 20 new players annually, which is tough when the rest of college football is doing the same thing.
Nick Saban coaches the Alabama Crimson Tide – the gold standard for college football recruiting for the past 16 years. In what has become known as ‘the process’, Saban targets the best players from across the country based on a finely tuned set of metrics and entices them onto his Alabama team.
The results have been wildly successful. Saban has won 40% of all national championships since 2003.
Saban describes the process in this way:
We decided to use the approach that we are not going to focus on the outcome. We were just going to focus on the process of what it took to play the best football you could play – which was to focus on that particular play as if it had a history and life of its own.
The average football play lasts only about seven seconds. Saban tells his players to focus not on winning the game, but on winning each block of seven seconds. By breaking a game down into shorter segments, the aim is to win more of these seven-second blocks than the opposition. Theoretically, the scoreboard should reflect that ratio.
So, what does this have to do with SPAC sponsorship?
The best coaches have a knack for recruiting the best players. However, as with money, wealth is not what you earn, it is what you can keep. The best college coaches know this so they focus on encouraging their biggest, strongest and fastest players to stay on the team during the dreaded transfer portal, which offers players a one-time chance to switch colleges without incurring the penalty of sitting out for one year. The rules mean coaches are permanently in sales mode, spending their precious energy trying to dissuade their best players from chasing greener pastures.
SPAC sponsors have their own transfer portal for capital. Like the best college football players, investors may already be on board with the deal but as a deadline looms, they sometimes get cold feet. Sponsors are therefore constantly re-selling the investors on a deal’s benefits rather than focusing on more important things, which can be a frustrating dynamic.
In an odd way, the market downturn of 2022 made the re-recruitment job slightly easier. While the S&P 500 fell about 19% over the calendar year, most SPAC stocks hovered near $10 per share, making them a safe port in the storm for nervous capital. This helped SPAC sponsors convince investors that now is a great time to put their money to work in a business.
However, massaging the worries of skittish investors is not easy, which is why Saban’s process is so effective. The best way to keep investors excited is for SPAC sponsors to focus on the seven seconds of due diligence the moment a target is identified.
Once a combination agreement is in place, sponsors must immediately dive in and get to know every aspect of the target business. This cannot be a simple box-checking exercise – it must be a thorough investigation of its assets and liabilities and its cost and profit centres.
Breaking the company down into its constituent parts means giving special consideration to the target’s intangible assets – its brand, its networks of customers and suppliers, intellectual property, know-how and other types. Understanding intangible assets is the only way to fully capture a company’s value and keep SPAC investors fully informed.
Done right, the due diligence process goes a long way to giving investors the comfort they seek that the deal is good and will perform well over the long term.
SPAC sponsors should study Saban's process.
Just like college football coaches, SPAC sponsors are also constantly wooing investors, while living in fear they might leave without warning. This makes re-recruiting the most daunting challenge facing SPACs today.
Sponsors can convince investors to stick around if they perform steady due diligence – winning each of Saban’s seven seconds – until the final whistle.
This is an Insight article, written by a selected partner as part of IAM's co-published content. Read more on Insight
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