SPAC devaluations are not a cause for concern, says Evercore

What goes up must come down, as they say. While Israeli companies enjoyed some initial booms in the SPAC market earlier this year, the continued depreciation of some recent exits is starting to turn some heads in the industry.

According to Neil Shah, a Senior Managing Director in Evercore’s Strategic Advisory practice who leads its Global SPAC Advisory business, the drops the country is seeing are perfectly normal and should not yet worry companies or investors.

“The market environment, the equity market environment earlier this year, was very robust from a valuation perspective,” Shah told CTech when addressing the explosive growth seen in Israel and the world in the SPAC market. “When you price a SPAC deal, and many of them were done in the first part of the year, it is done at a fixed price. And hence what's happened is that markets have just traded off.”

Shah has been directly involved in some of the world’s biggest SPAC deals. Recently, he led the largest SPAC merger in history with a $40 billion transaction of Singapore-based Grab with Altimeter Growth Corp. In June 2021, Evercore LLC acted as sole financial and capital markets advisor to Israeli company Innovid for its $1.3 billion SPAC merger with ION Acquisition.

“We can see in earnings in August, a bunch of companies had great earnings in 2021 and stocks have traded a little flat. So, it’s a normal course company effect and broad macro effect versus anything specific to Israel,” he said.

The SPAC boom in Israel has hit a perceived slump in recent weeks as companies like Hippo and Cellebrite have been hit with a whiplash that is seeing their initial valuation almost halve after a high start in the SPAC market. The valuation isn’t as important, Shah said, as much as the earnings and the money coming in.

“I think what is important is earnings, and making sure quarterly earnings are met and expectations are met with investors,” he continued. “If expectations are not met, and expectations are missed, then I think the stocks could get a jolt down. That’s something that’s more concerning in terms of the quality, the management teams that are taking these companies public, and their ability to provide a necessary forecast. But the fact that a stock oscillates 10-15% and goes down and up based on the market... let's have Judgment Day five years from now instead of four weeks.”

Len Rosen, Director of Evercore Israel, believes that while Israel may have joined the SPAC game relatively “late but strong”, the country is seeing a cultural shift in how they operate their companies. “It took a while until Israeli corporates recognized the potential in the SPAC market, but since then there has been a number of them and there is a number that is looking at SPACs very strongly,” he said. “Historically... Israeli companies have been eager to go public early. That has evolved a lot in recent years but I do think that the new trend towards SPACs has invited in some that are going early.”

SPACs in Israel have garnered somewhat of a reputation as being a means to a quicker and easier end. Something that can help a company raise capital and go public earlier than usual, perhaps even if they are too young or small to do so. This belief, which Shah and Rosen reject, might be the cause of concern as Israeli companies are quickly seeing their large numbers shrink when the seasons shift from summer to fall.

“I don’t think it’s a shortcut (to Wall Street),” Shah said. “A shortcut means that you can get from one point to a second point in a quicker fashion. That’s to me, when I’m walking down a path, I take a shortcut, I cut a corner because I can get there faster… The IPO process versus the SPAC process doesn't lead one to the conclusion that it’s a shortcut. I think there is a perception that exists in this market.”

If there’s one thing this last year is teaching Israelis and the local market is that it’s time to scrub up on SPAC knowledge. As of now, business schools are only recently including them as an option in their curriculums, and there is a scarce amount of textbooks helping aspiring entrepreneurs. However, based on Israel’s entrepreneurism and open-mindedness, the SPAC journey is far from over in Startup Nation.

“You guys have great technology companies,” he concluded. “And the fact you have founders that are open-minded enough and sophisticated enough to be willing to listen and to engage and explore this option is a testament to the entrepreneurism that exists in Israel.”

Evercore is a global independent investment bank that helps clients with strategic M&As, fundraising, capital raising, balance sheet management, and activism response. It was founded in 1995 and Shah joined the company after a history at Citi, where he built its SPAC business between 2005-2008.