Asia is Emerging as the Next Market for SPACs and De-SPAC Targets

SPAC

SPAC sponsors are looking at Asia for de-SPAC M&As, while Asian investors are rushing to launch their own SPACs

In 2020, U.S. financial markets witnessed a historic rise in the number of Special Purpose Acquisition Company (SPAC)initial public offerings (IPOs). According to SPAC data, a total of 248 SPAC IPOs took place in 2020, raising a record US$83.34 billion. That’s an increase of over 400% in the number of SPAC IPOs in 2019.

SPACs, also called blank check companies, have no commercial operations and conduct IPOs to raise capital for aquiring or merging with with a target business.

Under current regulation, SPACs have two years from IPO to identify a target business and to acquire or merge with it. Therefore, the 248 SPACs that went public last year are now hunting for target businesses to acquire by the end of 2022. In total, there are 300 SPACs looking for acquisitions, i.e. to “de-SPAC,” at present.

Moreover, with governments pouring in trillions around the world to combat the pandemic, the SPAC frenzy is expected to continue this year. In fact, in January this year, SPACs sold $26 billion worth of shares, according to Bloomberg data.

Although the SPAC boom will likely simmer down in the long run, it has created an enormous number of mergers and acquisitions (M&A) opportunities.

The de-SPAC-ing race

Last month, Goldman Sachs Group strategists wrote in a note, “Based on their 24-month post-IPO expiration dates, these SPACs will need to acquire a target in 2021 or 2022, nearly equal to the total enterprise value of SPAC deal closures during the last decade.”

Olympia McNerney of Goldman Sachs’ Investment Banking Division said in a podcast last month that de-SPAC transactions could potentially represent more than $500 billion of M&A. McNerney’s prediction marked an increase from the bank’s initial estimations: in December 2020, Goldman Sachs had said that the total enterprise value of SPAC M&As would be around $300 billion.

With the number of ready-to-list tech unicorns in Asia increasing amid the pandemic, these SPACs are now looking at Asia as their de-SPAC-ing ground. According to a Reuters report, several SPACs are in conversation with Asian tech and healthcare startups for M&A deals.

Reuters quoted Japanese financial holdings company Nomura’s head of Southeast Asia investment banking Sarab Bhutani saying, “These days, not a single conversation goes by in Asia when SPACs are not discussed. Southeast Asia is a focus market given the number of high-growth tech-enabled companies.”

Singapore-based ride-hailing unicorn Grab, Indonesia-based food delivery giant Go-jek, and ecommerce firm Bukalapak are currently de-SPAC targets, the Reuters report added. Indonesian online travel app operator Traveloka is also reportedly considering a merger with a SPAC to go public.

A reverse-merger with a SPAC will allow a private company to go public, since its parent company – the SPAC – is already listed on an exchange. This listing route started gaining popularity last year and offers a shorter timeline to IPO than going through the traditional underwriting and compliance process. It is also comparatively less cost intensive.

While the SPAC listing frenzy continued through the whole of 2020, de-SPAC transactions worth $56 billion were announced last year. The push to de-SPAC will continue this year since SPACs that cannot complete their de-SPAC transaction within their two-year post-IPO deadline will become defunct.

In this race for acquisition targets, SPAC sponsors are reportedly competing to woo attractive target businesses in Asia. But as there are limited potential target businesses, this could lead to a supply and demand issue. There were only 176 Asian unicorns as of last month, and there are over 300 SPACs looking for targets.

Asia is joining the SPAC frenzy

Asia is not only being looked at as a fertile de-SPAC ground, but is also joining the SPAC bandwagon itself. A major driver for the inception of the SPAC trend in Asia was Antony Leung, a former Hong Kong finance secretary and an ex-Blackstone executive who launched a $1.5 billion SPAC in 2018.

Chinese investment advisory firm CITIC Capital’s SPAC raised $240 million in its U.S. IPO last year. It made CITIC the first state-owned Chinese company to list a SPAC. Another SPAC launched in 2020 backed by an Asian sponsor was Malacca Straits Acquisition, which is targeting a Southeast Asian business to de-SPAC. The SPAC, which raised $125 million from its Nasdaq listing, was backed by Kin Chan, Founder and CIO of Argyle Street Management

Even Asian investment giant SoftBank joined the SPAC frenzy. The company plans to launch a tech-focused SPAC aiming to raise $525 million, it announced in December 2020.

In another regional development, Singapore’s stock exchange announced last month that it will begin a formal consultation to allow SPAC listings. The Singapore bourse would, therefore, become the first major Asian stock exchange to list SPACs.

The announcement is timely, as Southeast Asia’s largest unicorns Grab, Go-jek, and Tokopedia are mulling SPAC mergers. Moreover, it’s rumored that this is a tactic to gain an advantage over its rival, the Hong Kong Stock Exchange, which leads the Asian market in terms of tech IPOs.

Regardless of whether Singapore or Hong Kong emerges as the SPAC center in the East, it is evident that Asian unicorns and investors are looking to ride the SPAC wave.

Header image by NikolayFrolochkin from Pixabay

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