(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

NEW YORK - When it comes to merging with a special-purpose acquisition company, luxury Italian-suit purveyor Ermenegildo Zegna has managed to dress for bad weather as well as good. That puts it in sharp contrast to another SPAC deal involving millennial-friendly media outfit BuzzFeed.

Zegna plans to merge with a listed blank-check firm called Investindustrial Acquisition, which will put in up to roughly $860 million and value the suit-maker at $3.2 billion. On Monday, it said it had secured an extra $125 million as a “private investment in public equity”, or PIPE. That will only kick in if investors in the SPAC exercise their right to withdraw their money when the deal closes.

Having this extra money in the back pocket is good for Zegna in a couple of ways. It ensures that, so long as redemptions are modest, Zegna will still get a predictable amount of money. And the Zegna family, which plans to retain more than 60% of the company after it’s listed, can rest assured that cash is coming in, while keeping a check on their own dilution.

BuzzFeed, which made its public debut on Monday through its merger with blank-check firm 890 5th Avenue Partners, was less lucky. The digital media firm founded in 2006 by Jonah Peretti raised a paltry $16 million out of $288 million in the SPAC’s trust – because so many investors took their money back. There was no PIPE: BuzzFeed sought $150 million in convertible notes instead.

It’s not just BuzzFeed that is seeing higher redemptions. So far in the fourth quarter of this year, around 60% of money was whipped out of SPAC deals on average, from around 30% in the fourth quarter of 2020 according to SPAC Research. BuzzFeed’s 96% redemptions leave it with only enough cash in the SPAC to cover 16 days of operating costs, at this year’s rate so far.

Zegna may have avoided a vicious cycle. If investors know the company will emerge from its SPAC deal with plenty of funding, they may be more likely to stick around. Cash and confidence go together. BuzzFeed, which as of Monday around noon was trading at $9.29 compared with the $10 at which its SPAC deal was struck, has ended up lacking in both.

 

CONTEXT NEWS

- Italian luxury brand Ermenegildo Zegna said on Dec. 6 it secured an additional investment of up to $125 million to accompany its merger with a blank-check firm, after which Zegna will be a listed company.

- The investment, known as a “private investment in public equity” or PIPE, will be limited to the amount of redemptions by shareholders of Investindustrial Acquisition Corp, the special-purpose acquisition company that agreed on July 19 to buy Zegna at a valuation of $3.2 billion.

- Mergers involving SPACs typically offer investors in the blank-check firm the right to withdraw their funds when a deal closes.

- Digital media firm BuzzFeed began trading on the Nasdaq on Dec. 6 after it completed its merger with a SPAC called 890 5th Avenue Partners. BuzzFeed had said on Dec. 2 it would receive about 6%, or $16.2 million, of the SPAC’s funding, after investors opted to withdraw the rest.

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

(Editing by John Foley and Sharon Lam) ((For previous columns by the author, Reuters customers can click on SABA/ SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS https://bit.ly/BVsubscribe | jennifer.saba@thomsonreuters.com; Reuters Messaging: jennifer.saba.thomsonreuters.com@reuters.net))