Signal Hill Acquisition Floats SPAC For DTC Focus

Feb. 14, 2022 2:48 PM ETSignal Hill Acquisition Corp. (SGHL)

Summary

  • Signal Hill Acquisition sold $100 million in units in a recent IPO.
  • The SPAC aims to combine with a DTC, media, tech or digital enterprise.
  • While management has in-depth media experience, I'm not optimistic about the DTC approach, so I'm on Hold for this recent IPO.
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Direct To Consumer - Man Pushing Button on Futuristic Interface.

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Quick Take

Signal Hill Acquisition Corp. (NASDAQ:SGHL) has sold $100 million from an IPO at a price of $10.00 per unit, according to the terms of its most recent S-1/A regulatory filing.

The SPAC (Special Purpose Acquisition Company) intends to pursue a merger with a company in the sectors of direct-to-consumer (DTC) media, technology or emerging digital enterprises.

My outlook for the DTC space, in general, isn't positive and I'm not convinced this management team has the DTC experience to successfully acquire and navigate such an uncertain environment.

I'll watch SGHL from the sidelines.

Signal Hill's Sponsor Background

Signal Hill has 3 executives leading its sponsor, Signal Hill Acquisition Sponsor.

The sponsor is headed by Chief Executive Officer, Jonathan Bond, former CEO of advertising and media agency Kirshenbaum Bond Senecal & Partners.

Chairman, Paul Roberts, has held various senior positions at Kubient (KBNT), including Chairman and CEO.

CFO and President, Grainne Coen, has more than 20 years' experience in various financial roles and is Co-Chairperson of Genesis Unicorn Capital (GENQ), a SPAC.

The Signal Hill SPAC is the 1st vehicle by this executive group.

Signal Hill's SPAC IPO Terms

Wilmington, Delaware-based Signal Hill sold 10 million units of Class A stock and one-half warrant per share at a price of $10.00 per unit for gross proceeds of approximately $100 million, not including the sale of customary underwriter options.

The IPO also provided for 0.5 warrant per share, exercisable at $11.50 per share on the later of 30 days after the completion of its initial business combination or 12 months from the closing of the offering, and expiring five years after the completion of its initial business combination or earlier upon redemption or liquidation.

The SPAC has up to 21 months from the IPO closing to complete a merger (initial business combination). If it fails to do so, shareholders will be able to redeem their shares/units for the remaining proceeds from the IPO held in trust.

Stock trading symbols include:

Founder shares are 20% of the total shares and consist of Class B shares.

The SPAC sponsor has also committed to purchase up to 6 million warrants at $1.00 per warrant in a private placement. Each warrant will entitle the sponsor to purchase one share of Class A common stock exercisable at $11.50 per share.

Conditions to the SPAC completing an initial business combination include a requirement to purchase one or more businesses equal to 80% of the net assets of the SPAC and a majority of voting interests voting for the proposed combination.

Additionally, management will only complete a transaction where the public entity owns or acquires 50% or more of the outstanding voting securities of the target company.

The SPAC may issue additional stock/units to effect a contemplated merger. If it does, then the Class B shares would be increased to retain the sponsor's 20% equity ownership position.

Commentary on Signal Hill

Signal Hill is a SPAC that is focused on the direct-to-consumer space for media and technology companies, and the SPAC leadership appears to have significant experience in the online media space.

The DTC space has seen a few notable successes in recent years but is operating under a question mark in the current environment.

The advantages of the DTC business model include increased customer knowledge and 'ownership', greater data from customer interactions and higher margins by avoiding the middleman distribution channel.

However, the disadvantages include higher direct marketing costs throughout the marketing funnel and the need for the company to have a retail presence in many instances.

Central to the current DTC proposition has been the ability to advertise via major advertising platforms such as Facebook (Meta), Google and Amazon.

These advertising platforms are undergoing change as a result of the change by Apple regarding identifying information which is disadvantageous to platforms such as Meta's, at least until it can rebuild its advertising technology stack.

The result is reduced ROI for advertisers of all kinds within the Meta platform, and that includes DTC firms.

While management certainly has experience in media, it isn't clear that they have experience in a DTC environment.

Additionally, this appears to be the first SPAC this management team has launched, so the group is an unknown entity versus SPAC groups that have several SPACs in their portfolio.

So, my outlook for the DTC space, in general, isn't positive and I'm not convinced this management team has the DTC experience to successfully acquire and navigate an uncertain environment.

I'll pass on the SGHL SPAC.

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This article was written by

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