CAPE TOWN – Capital Appreciation, the first special purpose acquisition company (SPAC) to list on the main board of the JSE, opened for trade this morning at R1 a share. The company is chaired by the co-founder of Netcare, Motty Sacks, and the management team includes his son Bradley, the former CEO of Macsteel SA Michael Pimstein, and former Bidvest executive Alan Solomon.
The manage team raised a full R1 billion in cash through a private placement that closed on October 9. This is double the minimum target of R500 million they had set, which is the requirement for listing on the JSE’s main board.
“We are encouraged by the strong support we have received from investors thus far and excited about the company’s prospects,” said Motty Sacks, at the listing. “Apart from cash of R1 billion being available, the company will also have the use of its equity and/or levels of debt to enhance the company’s financial flexibility for acquisitions.
As a SPAC, Capital Appreciation has listed with no operations of its own. It however has a specific mandate to acquire or merge with other companies.
The company cannot disclose what deals it has in the pipeline, but it has indicated that, given the expertise that exists on its board, its focus will be on assets in the broader services sector. This would include areas such as healthcare, education, financial services, insurance, technology, media and telecommunications.
Management has explicitly excluded the possibility of making any acquisitions in mining, manufacturing or retail, but it will not limit itself to a specific geographical area. It is therefore possible that it will seek international acquisitions.
Watch co-founder Bradley Sacks discuss the company’s SPAC listing and strategy.
Because Capital Appreciation does not yet have any operations of its own, investors are in a sense signing a blank cheque on the expectation that management team will put it to good use. They are putting their faith in the acumen and deal-making ability of the company’s founders.
They will also take encouragement from the fact that the Public Investment Corporation is the largest initial investor, having put down R250 million. The company also boasts two significant empowerment investors through Capital Appreciation Empowerment Trust and African Rainbow Capital, who each invested R50 million.
Most asset managers are however unlikely to take an early interest in the SPAC, as there is no way of valuing the company until it has made acquisitions. At this stage it is impossible to judge its earnings potential and whether the price is fair.
Analyst at Efficient Select, Callan Williamson, says that you could get excited if you were confident of management’s ability to make wise acquisitions, but that would be going on faith.
“Effective capital allocation is a very difficult task and the best way to determine management’s ability in this regard is by judging their track record,” he says. “Obviously there is zero track record to date and therefore we can’t formulate an opinion. They have gathered an impressive management team and I’m sure they can do well, but it’s impossible to tell at this stage.”
Without knowing what the future holds for this company, investors are effectively speculating. That may not suit asset managers, but it could still be appealing to others who can afford to be patient with some of their money.
The SPAC is likely to trade sideways or possibly even down for some time as the market waits for the initial investments to be made. If the management is successful however, there is the potential to make positive long-term returns.
Capital Appreciation traded upwards to R1.05 per share in early trade.