As SPACs flood the market, target companies are next point of focus

Clockwise from left: Ravi Thakran, Chairman and CEO, Aspirational Consumer Lifestyle Corp; Kristie Neo, DealStreetAsia moderator; Helen Wong, Qiming Venture Partners; Jun Hong Heng, Crescent Cove Advisors

As special purpose acquisition companies or SPACs gain popularity as an alternative to IPOs in the US markets, their sponsors get busy carving out their next phase of growth.

According to data available with SPACInsider, nearly 190 SPACs have been launched in the US stock markets so far this year, raising over $59 billion. That’s already about 75% of the total number of SPACs that raised capital in the whole of 2020.

“The important metric to track is actually the de-SPACing; how many of these SPACs will actually be successful,” says Helen Wong, partner at Qiming Ventures, referring to the merger process, once the SPAC identifies a target company to acquire.

“As long as there are good quality companies coming to the SPAC market, I think there will be a continuous supply of, and demand for, SPACs. When the quality deteriorates then maybe at some point, people will be less enthusiastic.”

Wong sits on the advisory board of Catcha Group’s SPAC, Catcha Investment Corp, which filed to raise $250 million in an IPO on NYSE earlier this month. She was speaking at DealStreetAsia’s webinar SPAC to de-SPAC: What’s next for the hottest fundraising vehicle, with Ravi Thakran, the chairman and CEO of Aspirational Consumer Lifestyle Corp, and Jun Hong Heng, founder and CEO of Crescent Cove Advisors LP.

Southeast Asia is a prime hunting ground for SPACs, given that the region has promising tech unicorns that may not yet have the size and scale for a successful IPO in the US, while domestic markets may be under-equipped for them due to their size.

“I think Southeast Asia is probably a little easier for US investors,” Wong says. She notes that Chinese companies, for instance, have had the choice of big, booming markets to list in – from the domestic exchanges to Hong Kong and the US. “In China, there hasn’t been a need to look for an alternative vehicle, whereas I think in Southeast Asia there’s not been so many [options].”

Among other SPACs that are currently scouting for targets in Southeast Asia include COVA Acquisition, Crescent Cove’s $300 million vehicle, that also listed earlier this month.

Part of the reason is Silicon Valley-based Crescent Cove’s longstanding business relationships in the region, particularly in Indonesia, which would allow the firm to be more discerning about targets, explains Heng.

“We have confidence in the partnership, in working together and having a successful business combination,” he says. “We can focus on areas where we have an edge, and have the ability to execute.”

COVA is reportedly in negotiations with unicorns in Indonesia, including Traveloka.

To be sure, SPACs have existed since the 1990s. But the so-called blank-cheque companies really took off last year as investors, flush with liquidity, started looking for returns in a low-interest rate, low-yield environment.

However, SPACs’ track record has so far been less-than-stellar. Of all the high-profile listings that made headlines recently, some are staring at challenges. Electric truck maker Nikola Motors, which listed via a SPAC last June, is now mired in investigations related to fraud allegations. The company has just admitted that its founder Trevor Milton, who left in September, made inaccurate claims about the company leading up to its listing.

Criticisms of the SPAC process include the fact that companies looking to list through the SPAC route are allowed to project robust growth expectations – which companies filing for the conventional initial public offering are restricted to do.

In Thakran’s view, however, SPACs are especially suited for companies that have so far not got access to the traditional listing route.

“We’re living in a great time of tech-enabled businesses, which has really brought a phenomenal number of companies which should potentially be public but haven’t got access to public markets,” he says.

“This particular feature of a SPAC, wherein you could use your projections, which you can’t do in an IPO, is a great one particularly for tech-enabled businesses, where they can show a clear path to profitability, while not being profitable today.”

Thakran, who has recently launched his second SPAC targeting consumer companies, adds that non-tech companies are just as attractive as targets for SPACS. Aspirational’s first vehicle has announced it was merging with private jet charterer Wheels Up.

The way Thakran sees it, SPACs today will be different from the second-rate issues of the past.

“The key issue is the quality of sponsor, the quality of targets they seek and sincerity of purpose – to add value to the play,” he says. “You need to go for a brand that resonates, it is in a category that has a true tailwind, it is IPO-ready, it has strong growth but can be accelerated further with a partnership, with people like us, and there is strong unit economics, or there is a clear path to profitability.”

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.