Southeast Asia is seeing a growing appetite for SPACs.
To date, about 10 SPACs or blank cheque firms representing close to $3 billion have expressed intentions to acquire Southeast Asian companies. The candidates range from the top brass of global investment firms like Pacific Century Group and Thiel Capital to growth-stage investors like Provident Group and VCs such as Vickers Venture Partners and Catcha Group.
|SPAC Name||Sponsor||Sponsor members||SPAC target size||Amount raised at IPO||Date listed||Target company||Target market||Exchange listed|
|SVF Investment Group||SoftBank Investment Advisers (SBIA)||Rajeev Misra, CEO of SBIA, and Navneet Govil, CFO of SBIA||$500-600m||$525m||2021-01-08||Still searching||Asia/Southeast Asia||Nasdaq|
|Bridgetown Holdings||Bridgetown LLC||Richard Li's Pacific Century Group & Peter Thiel's Thiel Capital||$500-550m||$595m||2020-10-20||Still searching||Southeast Asia||Nasdaq|
|Bridgetown 2 Holdings||Bridgetown 2 LLC||Richard Li's Pacific Century Group & Peter Thiel's Thiel Capital||$200-260m||Still searching||Southeast Asia||Nasdaq|
|Aspirational Consumer Lifestyle||Aspirational Consumer Lifestyle Sponsor LLC||Ex-L Catterton execs, Ravi Thakran, J. Michael Chu and Scott A. Dahnk||$225m||$225m||2020-09-23||Still searching||Southeast Asia||NYSE|
|Provident Acquisition||Provident Acquisition Holdings||Provident Growth and Provident Capital||$200m||$200m||2021-01-08||Still searching||Southeast Asia||Nasdaq|
|Tiga Acquisition||Tiga Sponsor LLC||Raymond Zage III and Ashish Gupta||$200-240m||$240m||2020-11-24||Still searching||Southeast Asia||NYSE|
|Vickers Vantage Corp 1||Vickers Ventures Partners Fund VI||Vickers Ventures Partners Fund VI||$100m||$120m||2021-01-06||Still searching||Southeast Asia||Nasdaq|
|Crescent Cove Acquisition Corp||Crescent Cove Acquisition Sponsor LLC||Jun Hong Heng, CEO and CIO of Crescent Cove, Karanveer “K.V.” Dhillon, President of Crescent Cove||$200m||Still searching||Southeast Asia||Nasdaq|
|Catcha Investment Corp||Catcha Holdings LLC||Catcha Group's Patrick Grove and Luke Elliott, and Goldman Sach's Wai Kit Wong||$250m||Likely mid-Feb||Still searching||Southeast Asia||NYSE|
|Malacca Straits Acquisition||Malacca Straits Management Company Limited||Ark Pacific Capital Management Managing Partner, Kenneth Ng; K2 Venture Capital founder and managing director, Stanley Wang; Argyle Street Management founder and CIO, Kin Chan||$125m||$125m||2020-07-17||Still searching||Southeast Asia||Nasdaq|
|L Catterton Acquisition Corp||L Catterton Asia 3||$250m||Asia/Southeast Asia|
|Lefteris Acquisition Corp||Lefteris Holdings LLC||Mark Casady, GP at Vestigo Ventures, former CEO of LPL Financial; Karl Roessner, former CEO of E*Trade Financial Corp||$225m||$200m||2020-10-21||Still searching||Global/Southeast Asia||Nasdaq|
|Primavera Capital Acquisition Corp||Primavera Capital Acquisition LLC||Primavera Capital Group's Fred Hu, Tong “Max” Chen||$300m||$360m||2021-01-21||Still searching||Asia Pacific||NYSE|
This list may grow longer yet. Requests to launch and seek SPACs have accelerated in recent months, say Asia-based bankers. According to Frank Troise from SoHo Advisors, a boutique investment firm focused on cross-border deals in the Asia Pacific and the US, its client pipeline of US-listed SPACs seeking Southeast Asian targets now stands at 47 and counting.
At the same time, Southeast Asian companies are also warming up to SPACs, which until recently has been an exit option largely unexplored by founders.
The opportunity is especially prominent for “mid-market” Asian companies with a valuation of around $500 million, said Marcus Yeung, founder and CEO of SEAbridge Partners, a Singapore-based investment bank focused on Asian tech deals. By his count, some 50 companies fall under this category across sectors such as financial services, logistics and deep tech.
“We think there are a number of Singaporean companies that may be good SPAC candidates. Singaporean firms tend to be more regional, with a broad spread of sectors from consumer tech to biotech. These are startups in Series B to C stage, where you begin to see VC funds stepping out because valuations are high,” explained Yeung.
SPAC track record
SPACs have a patchy track record though. Until recently, these publicly-listed shell companies have been the stomping ground for minor league hedge funds dubbed the “SPAC mafia,” who exploit the structure of the vehicle to pump and dump capital at the expense of retail investors.
Many of them reap outsized returns.
According to a study of 47 SPACs by Stanford Law School professor Michael Klausner and New York University Law School professor Michael Ohlrogge in October 2020, the most successful sponsors can pocket over 1000% in returns, although a few did lose money. The mean sponsor returns for SPACs three months post-merger stands close to 400%. For SPACs twelve months post-merger, the sponsor returns dip slightly to 187% — still not too shabby at all.
Investors also favour the SPAC for its arbitrage play. Vocal advocates like Social Capital’s Chamath Palipathiya, who has taken billion-dollar giants like Virgin Galactic public via SPAC merger, reportedly bought a 20% stake at a deep discount after the SPAC combined with another firm, allowing them to generate as much as 8-10 times their original investment upon merger, per a WSJ report.
Raising capital for a SPAC is still the easy part, says Nomura’s head of Southeast Asia investment banking, Sarab Bhutani. The real challenge is whether these SPACs are able to successfully close a deal, particularly when it comes to the de-SPAC and PIPE process.
But if historical data is any indicator, a good number of SPACs lapse their 12-18 month deadline of even finding an acquisition target. According to SPAC Analytics’s count of 727 US-listed SPACs since 2003, 90 were liquidated.
Hurdles to cross
Sang-Uh Han, who formerly managed North Asia Investment Corporation (NAIC), a US-listed SPAC under South Korean investment firm Kang & Company, said that blank cheque firms usually find themselves scraping the bottom of the barrel when it comes to quality targets.
Tax and legal codes were largely restrictive in South Korea in 2008, which deterred many good quality companies from agreeing to a SPAC merger. NAIC changed tack to seek Chinese targets, but those fell flat too. Eighteen months later, the firm shut down and returned all its money.
Industry sceptics are swift to point out that few sponsors, lawyers and bankers possess the experience required to pull a SPAC off successfully. This pool shrinks even further when it comes to Southeast Asia.
“In the US, SPACs used to be dominated by a cottage industry of mid-tier investment banks and lawyers like Early Bird Capital and Graubard Miller. Within that, there’s a whole pecking order of these firms because of how niche and specialised this industry is,” said Sang.
It could be one of many reasons why SPAC IPO performance has tended to be lacklustre when compared to traditional IPOs. SPAC IPOs delivered an average loss of -9.6% and a median return of -29.1% compared to an average aftermarket return of 47.1% for traditional IPOs, according to a Renaissance Capital report.
Southeast Asia has seen its share of SPAC execution slip-ups as well.
Take the case of Singapore-based online luxury retailer Reebonz that was valued at $252 million in September 2018, when Draper Oakwood’s $50-million SPAC announced plans to acquire the company. A year later, Reebonz would command a market capitalisation of just $9 million.
Other SPACs have made headlines for even less savoury reasons.
The exposé of financial irregularities in the former Bumi plc, a London-listed SPAC combining natural resource assets under Nat Rothschild and Indonesia’s Bakrie family, reportedly led to a bitter dispute involving millions of dollars in lawsuits and losses, accusations of fraud, cyberhacking, and bruised reputations.
SGX mulls SPAC listings
The SPAC’s chequered reputation isn’t stopping the Singapore Exchange (SGX) from considering SPAC listings though. Observers say the blank cheque firms’ tendency to attract unscrupulous investors will mean that SGX is likely to be extra cautious towards SPAC listings.
Any SPAC that lists on SGX – if it does get the green light – must put up a good performance in the market too, or risk turning away a whole market full of potential SPAC listings looking for an alternative listing destination outside the US, they point out.
The areas of assessment will likely cover stringent listing and reporting processes, high standards on the quality of management teams, and requirements to have target company valuations assessed by independent third-party practice.
“They may (also) borrow some elements of investor-friendly SPACs like Bill Ackman’s SPAC by reducing the promote [a term used to denote founder shares] or tweaking the way promote works, just to ensure that interests are aligned and sponsors don’t walk away with outsized returns while shareholders are underwater,” explained Nomura’s Bhutani.
All in all, SGX would have nothing to lose by exploring the listing of SPACs.
“What have they tried that worked well?” said Sang. “SGX wants to turn Singapore into a capital hub and do so in a way that is distinct from HKeX, so they have to make these changes. I think that SGX is in a better position today because now they have great examples to reference for past lessons and pitfalls, such as the South Korean stock market and their ongoing SPAC adventures.”
The SGX was scant on details regarding its thought process on SPACs so far. “We have noticed the increasing popularity of SPAC listings in other markets, especially given volatile global conditions. We will consult the market if we propose rule changes to enable SPAC listings,” said an SGX spokesperson.