By Jarrett Banks
Global Partner Acquisition Corp. (Nasdaq: GPAC) is no stranger to the SPAC game. Having successfully taken mattress startup Purple Innovation Inc. (Nasdaq: PRPL) public in 2018, the special purpose acquisition company is back and actively searching for a long-term partner.
IPO Edge sat down with Chairman and CEO Paul Zepf to ask about lessons learned and how GPAC II will build on those.
IPO Edge: Regarding your experience with Purple Innovation Inc., what was key to your success and what have you learned from it?
Our ability to assess Purple’s differentiated products, traction with consumers, benefits of vertical integration, and their robust intellectual property protection, all gave us confidence that Purple would succeed in a competitive market. We knew we had something good there. We also knew we had to be patient, long-term partners and that mindset was critical as it was not all “smooth sailing” with Purple in closing the merger and in the first few months as a public company. But there was no panic. We worked constructively with the founders and the Board to take steps to upgrade Purple’s infrastructure, to build the management team, and to reinforce long-term strategic planning.
At the time of our merger three years ago, Purple had roughly $200 million in revenues and a modest adjusted EBITDA loss, 667 employees and 364,145 customers. For the last 12 months, Purple reported results of $600 million in revenue and $80 million of adjusted EBITDA, 1,582 employees and north of 1.6 million satisfied customers. It’s important to note, we are proud of this job creation and all of our production is in the US. I believe GPAC’s merger with Purple is a textbook example of how a value-added SPAC sponsor and high potential merger partner can come together to create a win for all parties involved.
Purple is a successful public company with a bright future and the founders achieved their desired full liquidity within three years of the merger. As I said, the company itself has added over 1 million customers, almost 1,000 employees (all in the US), and opened a second production facility in Georgia. Public market investors have benefited as Purple’s stock price has increased more than three-fold to over $30 per share. And GPAC has helped drive this multi-year, multi-party success. We are honored to have played a part in helping Purple through some of the early challenges of scaling the business and being a public company, and helping the company to take advantage of its tremendous growth opportunities.
IPO Edge: How is the structure of GPAC II different from other SPACs?
There are two critical elements which differentiate our APEX SPAC from other SPACs, both of which are designed to address some of the concerns that have been raised about SPACs – alignment of interests and dilution. First, as sponsor, we have taken half of our sponsor promote and made it contingent on the success of the post-merger stock price over a multiple year period. We think this is important as it reinforces our long-term commitment to the company and the success of all shareholders as well as minimizes dilution. Second, with respect to the GPAC II public offering, in order to build a shareholder base of fundamental long-term equity investors and to minimize the ability of short-term SPAC investors to redeem their common shares and keep all their warrants (the prototypical hedge fund convertible arb trade), in our APEX SPAC structure, to the extent that the public common share redeems in the merger, 50% of the corresponding warrants are canceled.
The reality is that short-term oriented SPAC investors who want to play the short-term arb trade have about 300 – you get the point – other SPACs where that’s fully possible and that’s fine. But for us at GPAC, we believe we have investors who are focused on making their return through the long-term appreciation of our post-merger stock price and our interests are aligned.
IPO Edge: What criteria are you using to select a merger partner?
Within our core consumer-related focus areas, we are looking for a business which possesses a differentiated offering with compelling fundamentals and long-term tailwinds. Sustained growth prospects are important, but we also want to partner with a company where GPAC’s track record and our ability to work constructively with the company can add value and help make a good opportunity great. Lastly, it important for me to mention that doing business in the right way, in a socially responsible way, has always been central to GPAC’s ethos. A focus on ESG is a prerequisite for GPAC and our prospective merger partner.
IPO Edge: We hear a lot of talk about ESG. How much does responsible investing affect your decisions?
Again, doing business in the right way, in a socially responsible way, has always been central to GPAC’s ethos. We will continue to look for partners that share that ethos and we will work with them to continue to support in those efforts. While it is something you hear a lot about, these are not just words for us. We are able to put it in practice because a focus on ESG is a prerequisite for GPAC II in any prospective merger partner.
IPO Edge: What are the advantages of a SPAC merger vs. a traditional IPO vs. a company sale?
A company sale is a full exit, giving up control and likely any meaningful upside in the future of the company. If a management team and their owners are looking to completely cash out, a sale is likely the best path. But for those companies and management teams who believe in the future of their business, and would like to secure permanent capital for their company while also realizing some liquidity for themselves, a SPAC merger with an experienced, value-added sponsor could be attractive.
A merger with a high-quality SPAC with a proven track record provides a number of advantages that an IPO does not. It gives you the ability to partner with a sponsor who has been through the process before and has developed a multi-year track record and credibility in the public markets that will work to the benefit of the merger partner. It is a faster and more streamlined route to securing permanent public market capital. You have the ability to use forward looking statements and financial guidance, which should allow the merger partner to secure a better valuation. And there is price transparency.
All of these factors are in contrast to the traditional IPO process, where a company works for six to nine months preparing for an IPO; files an S1 and markets to public investors without the ability to say anything about future prospects; hopes that at the end of the 6-9 month process the IPO “window” is still open and the reception from the public markets is as predicted by the underwriters; and then if all goes well up to that point, the IPO is priced in a way where there is very little transparency and the company has very little leverage at that point to do anything other than what the underwriters recommend.
IPO Edge Contact:
Jarrett Banks, Editor-at-Large