Special purpose acquisition companies (SPACs) are an alternative way of taking companies public that bypasses the traditionally cumbersome IPO process.
Between January and April approx. USD$100bn was raised through over 200 SPACs, 84 companies have announced they will float via SPAC mergers so far in 2021, versus only 123 using a traditional IPO1.
SPAC’s are argued to offer a fast track IPO which is much less disruptive to a company and employees than a traditional IPO and also provides the benefits of a sponsor stamp of approval. Sponsors achieve attractive entrepreneurial economics and equity promote to align interests with investors (20% free promote – and potentially further upside as a shareholder and warrant holder). Investors gain liquid publicly traded exposure to private equity like investment, with downside protection and the right to redeem. If no acquisition occurs within two years, the SPAC is automatically liquidated, and money is returned. No management fees are payable.
Hundreds of SPACs are now searching for target companies at the same time. With an imbalance between the number of SPACs and the number of quality targets, time and competition pressure, and strong incentives for SPAC sponsors to make a deal, the potential for mergers with underwhelming targets, or on terms unsatisfactory to SPAC investors is real.
SPACs and Asia
In February 2021, the CEO of the SGX announced it is proposing to introduce regulations to allow the listing of SPACs in Asia, making it a fertile ground not just for targets but also for sponsors1. SGX, the first major Asian bourse to consider the listing of SPACs, is calling for market feedback from 31 March till 28 April, after which it could introduce regulations by mid-year.
HKEX is still exploring whether to allow SPACs, determining if they enhance the competitiveness of Hong Kong as an international financial centre, while safeguarding the interests of the investing public. According to speculation, Hong Kong is expected to have its own blank cheque company listing framework2 ready in June for public feedback and targets allowing deals to start by the end of this year.
As Australian firms field a growing number of approaches from SPACs, the ASX is facing a growing chorus of supporters clamouring for SPACs to be allowed on the ASX, especially given that some companies that might have listed on the ASX could instead look to the US for a SPAC merger. The ASX’s official position is that it is taking a close and cautious look at the SPAC phenomenon.
The fact that SGX and HKEX are considering allowing SPACs shows that they may become a longer-term and viable investment model in Asia.
SPAC Listings from Asia and Australia
From Asia
Gateway Strategic Acquisition backed by buyout firm Gaw Capital Advisors; Artisan Acquisition, backed by New World Development's Adrian Cheng; and Hony Capital Acquisition are some of the Asian SPACs that are waiting to list in the US. More SPACs are being planned by the likes of Hong Kong's richest property tycoon Li Ka-shing; New Frontier Group, backed by the China-focused Nan Fung Group; and private equity firm EmergeVest3.
Richard Li and tech mogul Peter Thiel have raised about US$900m via two listed SPACs under the Bridgetown brand. Bridgetown’s first vehicle was in early talks to take Indonesia’s e-commerce giant PT Tokopedia public, in a deal that could value the combined company at US$10b. Bridgetown 2 Holdings Ltd began trading in February 2021 after raising nearly US$300m4.
In February 2020, China’s state-owned alternative investment management and advisory firm CITIC Capital raised $240 million through a SPAC listing in the US5. Malacca Straits Acquisition, also listed in the US in July 2020, is backed by Hong Kong-based Argyle Street Management and focuses on Southeast Asia6. Singapore-based entrepreneur David Sin set up a healthcare-focused US$150m SPAC in June 20197.
In February 2021, serial tech entrepreneur Patrick Grove and his Catcha Group co-founder Luke Elliott listed Catcha Investment Corp on the NYSE. Patrick told The Australian Financial Review the capital raising was 10 times oversubscribed, with investors excited by the fact it was the first SPAC to specifically mention Australia as a core focus8.
On 13 April 2020, South-east Asian ride-hailing and food delivery giant Grab Holdings announced it intends to go public in the US through a merger with a SPAC of US-based investment firm Altimeter Capital Management. It is the largest-ever US equity offering by a South-east Asian company to date, with the proposed transaction giving Grab a market value of around US$39.6b9.
From Australia
Telstra’s venture capital arm, Telstra Ventures, is an investor in esport start-up Skillz, which listed in the US through a SPAC by merging with Flying Eagle Acquisition, which is led by the same financial team that brought DraftKings public through a SPAC. The company’s market value at the outset of trading was US$3.5b and at one point has even risen to over US$7b10.
Other targets including Traveloka, Bukalapak, PropertyGuru and One Championship are all mooted to be considering SPAC listings.
Opportunity
Data shared by Dealogic showed the number of Asia-focused SPAC companies grew from 0 in 2016 to 8 in 2020, raising about US$1.44b. But only four Asia-targeted SPACs were successfully completed in 2020. In the first three months of 2021, there have been six such companies that have collectively raised $2.7b11.
While still relatively small versus US-focused SPAC IPOs, the fast-expanding volume from Asia underscores the growing appeal of SPACs to this region's business entrepreneurs and this represents opportunity. The SPAC opportunity in Asia is only just beginning and is a thesis Aura Group is actively exploring for ways to participate.
Source:
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Making sense of the SPAC spectacle: https://www.economist.com/leaders/2021/04/24/making-sense-of-the-spac-spectacle
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Singapore Exchange hopes to list SPACs as early as this year: https://www.businesstimes.com.sg/companies-markets/singapore-exchange-hopes-to-list-spacs-as-early-as-this-year
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Asia’s Tycoons Pile Into SPACs Just as U.S. Eyes Tighter Rules: https://au.finance.yahoo.com/news/asia-tycoons-pile-spacs-just-210000141.html
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Richard Li, venture capitalist Peter Thiel raise US$900m via Spac: https://www.thestandard.com.hk/breaking-news/section/2/165840/Richard-Li,-tech-mogul-Peter-Thiel-raise-US$900m-via-Spac
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CITIC Capital plans $200 million U.S. IPO for 'blank cheque' company: https://www.reuters.com/article/us-citic-capital-spac-ipo-idUSKBN1ZM0U3
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SPAC Frenzy Takes Hold of Asia: https://fintechnews.sg/50228/funding/spac-frenzy-takes-hold-of-asia/
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SC Health Corporation Announces Pricing of Initial Public Offering: https://schealthcorp.com/press-releases/2019/07/11/sc-health-corporation-announces-pricing-of-initial-public-offering/
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First Aussie-focused SPAC hunts the ‘next Atlassian’: https://www.afr.com/technology/first-aussie-focused-spac-hunts-the-next-atlassian-20210212-p5722l
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Southeast Asian ride-hailing app Grab lands $40 billion SPAC deal for U.S. listing: https://fortune.com/2021/04/13/southeast-asian-ride-hailing-app-grab-lands-40-billion-spac-deal-u-s-listing/
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Telstra Ventures wins big from Wall Street’s SPAC attack: https://www.afr.com/chanticleer/telstra-ventures-wins-big-from-wall-street-s-spac-attack-20201218-p56osh
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The SPAC frenzy may be heading to Asia — experts say clearer rules are needed: https://www.cnbc.com/2021/03/26/spacs-growing-interest-in-asia-toward-blank-check-companies.html
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