SPACs and family businesses are cosying up with each other. But do they work for family owners?

SPACs are set to play a bigger role in the world of family businesses over the next few years as more companies use them to help meet challenges like digital disruption. For family businesses, they offer opportunities, but also risks. 

Special-purpose acquisition companies (SPACs), or shell companies/blank check companies, are a growing phenomenon especially in US capital markets, but increasingly in other markets as well.  

A SPAC can be the beginning of the dilution of the family’s ownership that can grow over time and potentially destroy their long-term capital

During March, April, and May, SPAC initial public offerings exceeded the number and value of traditional IPOs, according to data from Bloomberg. The trends suggest SPACs are likely to account for around 25% of the IPO market in the next few years, up from as little as 3% ten years ago.

More companies are using them to list and more of them are family businesses. SPAC sponsors like family businesses, because they feel they can add value to strong companies with fresh capital and strategic management expertise. Some SPACs are communicating their preference for family businesses, like Galileo Acquisition Corp, set up last October. 

For family enterprises looking to do a deal with a SPAC, the benefits can be numerous. They bring in new management, which can reinvigorate the strategic direction of the business and grow it more rapidly. SPACs also bring in fresh capital to grow a business as well as cash to pay off passive family shareholders wanting out. They can also bring listed company discipline to the business. 

On the downside, at least from a family owners perspective, they dilute the family’s ownership and control. They can introduce an “investment bank” ethos into the business, which often runs counter to family values. Long-term targets can be replaced by short-term ones. 

And, in the worst case, a SPAC can be the beginning of the dilution of the family’s ownership that can grow over time and potentially destroy their long-term capital. Many family businesses which list often lose what made them special in the first place. 

The latest SPAC family business deal

Utz Quality Foods, a fourth-generation family business, selling snacks like potato chips in the US, is the latest example of a SPAC/family business deal – and the benefits to the business look good, at least on paper.  

Based in Hanover, Pennsylvania and owned by the Rice-Lissette family, Utz merged with Collier Creek Holdings, a SPAC, earlier this month. The merger and IPO created a new company, Utz Brands, with the Rice-Lissette family retaining a sizable portion of the equity, around 50%, although down from more than 90% before (in value terms the 90% held in the pre-IPO business is equivalent to 50% of the new business, according to Collier Creek). 

Family member Dylan Lissette, who has served as Utz’s CEO since 2013, will continue to lead the new business and the company’s senior management will stay in place.

New management from Collier Creek is also coming on board This includes co-founder Roger Deromedi, who was the former CEO of Kraft Food and chairman of Pinnacle Foods. 

Another arrival is Chinh Chu, a near 20 year veteran of Blackstone, and an acknowledged top private equity deal maker. He’s since left Blackstone and set up CC Capital, a hybrid private equity and SPAC sponsor investment firm. Chu’s deal-making expertise is obvious and that should be useful for Utz if and when it makes acquisitions. 

The alignment of interest of all shareholders is important if such an arrangement works over a longer period of time, as all parties in the deal acknowledge. “This transaction delivers significant near-term value to our existing shareholders, and we are fully aligned with the Rice and Lissette family to drive long-term value creation in the future,” said Chu. 

The mood music is all good. How it plays out remains to be seen.