When special purpose acquisition company Roth CH Acquisition III cobbled together a group of investors to fund a deal to bring public QualTek, a builder of cell phone towers, its list of investors contained many of the usual types of participants, including Craig-Hallum, a brokerage that is one of the SPAC sponsors, and a mutual fund, Wasatch Micro Cap. Joining these mainstays of Wall Street: Nolan Ryan and Roger Clemens, each of whom bought 10,000 shares apiece as part of the PIPE—private investment in public equity—which is used to raise cash to close proposed SPAC mergers.
Ryan, who bought in his own name, and Clemens, who purchased his shares in a trust with his wife Debbie, joined 112 other companies and high-net-worth executives in the PIPE, whose investors were disclosed in an Aug. 31 Securities and Exchange Commission filing by the SPAC. Clemens and Ryan couldn’t be reached for comment.
“Typically, most SPAC PIPE participants tend to be institutional investors, with many already holding interests in the SPAC sponsor vehicle or sizable equity positions in the SPAC itself,” said John Mahon, a partner at Schulte Roth & Zabel, a law firm specializing in financial services and mergers and acquisitions. So far in 2021, 368 SPACs have raised $70.5 billion in PIPE financing, according to data compiled by PlacementTracker, a database of corporate financings. “Given that a SPAC PIPE will be subscribed for before a proposed business combination is publicly announced, the offering will normally be limited to a select group of investors, each of which must agree to be brought ‘over the wall’ with respect to the proposed target business,” Mahon added.
In practice, that means SPACs and their merger partners seek PIPE participants with one of two qualities: expertise in the business of the target company, which brings credibility; or large institutional investors, who lend confidence by locking up capital for the duration of the merger closing, a period that can be months long. Joining the PIPE syndicate also means you cannot trade shares because of access to inside information. When SPACs were the hottest investment around from summer 2020 until March this year, SPACs had little trouble finding investors, who saw it as an opportunity to get shares that seemed likely to go up in value.
“You’ve seen some deals with participation from professional athletes, celebrities and other high net worth individuals and in those situations, there can be strategic value in bringing on those personal brands and their relative following as ambassadors to the story,” said William Burns, a managing director at Cowen Inc. who has worked on various sports-related and media SPAC deals.
Yet as investor and regulator appetites for blank check deals changed this spring, SPACs began having trouble finding investors. That means Ryan, baseball’s first player to be paid more than $1 million a season, and Clemens, who collected $150 million in salary in his MLB career, may or may not have telecommunications insight, but they have something many SPACs need these days: money.
The QualTek deal isn’t the first for either pitcher. Ryan and Clemens participated in the second Roth CH blank check, which brought music publisher Reservoir Media (RSVR) public. They were joined in that PIPE syndicate by former Astros star Craig Biggio, who bought shares through a trust with his wife, Patricia. Earlier this year, Clemens was in the PIPE syndicate for Playboy Enterprises (PLBY), which went public through Mountain Crest SPAC.
Clemens and Ryan aren’t the only athletes to put capital into PIPEs. Alex Rodriguez bought into the deal that took wellness firm Hims & Hers Health public (HIMS), while Peyton Manning, Joe Torre, Steffi Graf and Andre Agassi were among PIPE participants for Evolv Technology (EVLV), a developer of next-generation airport security scanners. According to PlacementTracker, the list of nearly 2,000 investors that have backed PIPE deals in 2021 includes Major League Baseball, which invested in lithium-ion battery maker Stem (STEM), and The Kraft Group, the business arm of New England Patriots owner Bob Kraft, which took PIPE shares in MedTech Acquisition (MTAC), a SPAC bringing robotic surgery company Memic public.
Still, despite the rising participation of athletes and owners in SPACs in 2021 compared to prior years, athletes are still a minor part of the funding universe, based on PlacementTracker data. More common are athlete and sports executive participation as SPAC sponsors or board members. According to the Sportico Sports SPAC Tracker, there are 50 active sports-related SPACs searching for targets and another 55 that have filed for an initial public offering but have yet to complete it. Participation of investor-athletes in the PIPE side of deals can help get the odd merger closer to completion—like QualTek, which aims to complete its going-public transaction this quarter. But mainly for the SPAC market to get moving again it needs to see a return of large fund investors, something SPACs have had mixed results with.
“The supply side of the PIPE market has, to a certain extent, become misaligned with demand over the last few months,” said Burns. “There are a few dynamics at play, including a significant amount of PIPE capital tied up in deals that have been announced and not yet closed, which has been unlocking naturally as those deals have closed.”