SPACs face a new test: a wave of deals focused on Asia

Thousands of miles from Wall Street, the boom in blank check companies is taking hold in a region where major stock exchanges do not allow companies to raise money for unspecified uses.

In mainland China, Hong Kong and Singapore, investment firms controlled by tycoons and money managers have collectively raised billions of dollars on the New York Stock Exchange and the Nasdaq Stock Exchange over the past year through Special purpose procurement vehicles, demonstrating the scope SPAC’s boom has been.

Vehicles are publicly traded shell companies with cash funds ready to invest and merge with private companies. They have been touted by investment bankers as an easier way for startups to go public. If a SPAC fails to meet a merger target before a deadline, usually two years, investors could get their money back.

As of February 18, eight company-sponsored SPACs in Asia raised a total of $ 2.3 billion this year, according to data from Dealogic. The sum is small relative to what US companies have raised, but it has already exceeded the total raised from SPACs in the region for all of 2020. Bankers say more issues are likely, even from private equity groups.

“This is a compelling pocket of capital that all the large private equity and venture capital firms in Asia will be considering,” said Udhay Furtado, co-head of Asia capital markets at Citigroup. Inc.

Recent deals have included the $ 360 million NYSE listing of Primavera Capital Acquisition Corp.

, backed by a private equity firm founded by Fred Hu, former chairman of Goldman Sachs Group Inc.’s

Big business from China. Other supporters of blank check vehicles include Hong Kong billionaire Richard Li, who is the son of tycoon Li Ka-shing, and Chinese rainmaker Fang Fenglei.

Fred Hu, president of Primavera Capital, in Hong Kong in 2019.


Paul Yeung / Bloomberg News

All have flocked to the US, where investors are pouring money into blank check companies, because the big stock exchanges in Asia have not allowed those companies to go public. The Singapore Stock Exchange is considering a public consultation to allow SPAC listings after having previously examined the issue in 2010.

The exuberance has sparked debates among private equity investors and investment bankers over whether the trend will continue and whether there will be enough suitable targets to merge if the pace of fundraising continues. Most Asian sponsored SPACs aim to merge with regional or multinational companies that plan to grow in the region.

“People notice and watch,” said Raghav Maliah, co-head of M&A Asia, excluding Japan, at Goldman Sachs. He said the test will be whether the companies can “de-SPAC” successfully, a term used to describe their eventual acquisitions of operating businesses.

“If so, as with everything, success begets success. Otherwise, it could be a setback for the asset class as a whole, ”added Maliah.

So far, Asian companies that went public through SPAC in the US have largely disappointed investors. One of the most important mergers was the United Family Healthcare listing of $ 1.4 billion. A chain of high-end private hospitals in China, the company went public on the NYSE in December 2019 through a SPAC issued by New Frontier Group, an investment firm led by former Hong Kong financial secretary Antony Leung.

For more than a year, the shares of New Frontier Health, the merged entity, traded below the $ 10 per share price at which they were originally sold, a sign that the deal had not been well received by investors. Last week, the company said a Leung-led consortium planned to privatize it, pushing the share price above $ 11.

David Zeng, Managing Director of New Frontier Group, said the company “strives to create value [for] Investors / Shareholders ”and the proposed purchase would provide a return of 32.5% for those who invested in the original IPO with a blank check.

When targeting Asia-based companies, SPACs face additional challenges. “One of the biggest hurdles is overcoming concerns from US investors about the impact of geopolitical tensions on issues such as trade and technology transfer,” said David Shen, managing director of Olympus Capital Asia, which raised $ 130 million in January. dollars to invest in US companies. that intend to expand in the region.

The rapid growth of SPACs has also raised concerns, even among those who believe in the value of these vehicles as a source of capital and investment, about overvalued deals or the lack of adequate targets.

“There is a little fear [about SPACs] because this is too new for some people and it has grown too fast, ”said Joaquín Rodríguez Torres, a Hong Kong-based managing partner at private equity firm Princeville Capital, which raised $ 300 million last month on Nasdaq and is target technology business in Europe. and Asia.

Benjamin Kwasnick, founder of SPAC Research, said there were 335 SPACs listed in the US He said they had collectively raised more than $ 100 billion, which was deposited in so-called trust accounts.

“SPACs typically seek businesses at least three to five times the amount of cash in their trust account, so that could mean at least $ 300 billion to $ 500 billion in business value taken from SPAC’s current crop. “, He said.

In Asia, Goldman’s Mr. Maliah estimates that roughly 400 to 500 companies are looking to go public in the next two to three years. Some startups might opt ​​for a SPAC merger as a way to go public more quickly.

Write to Jing Yang at [email protected]

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