SPECIAL-purpose acquisition company (Spac) Vertex Technology Acquisition Corporation : VT1 0% (VTAC) has announced a proposed business combination with livestreaming operator 17Live. (See *Amendment note)

The combination will value the business at S$1.2 billion, with a purchase consideration of S$925.1 million, subject to financial targets being achieved.

VTAC will allot up to 160.6 million new shares at S$5 each, amounting to S$803 million, to 17Live’s shareholders. If 17Live hits the financial target set, an earnout of 24.4 million new shares at S$5 each will be allotted to applicable shareholders, amounting to S$122 million.

Shareholders of 17Live include Vertex funds.

Private investment in public equity (Pipe) funding will be raised, and VTAC will make further announcements when there are material developments.

17Live attempted to list on the New York Stock Exchange in 2018 as M17 Entertainment, but withdrew this listing plan when an investor failed a know-your-customer check, Tech In Asia reported. The company declined to comment on whether it will undertake a dual listing in the US after the combination. (See *Amendment note)

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Special bonus shares will be allotted to VTAC shareholders, with 0.1 new share at S$5 each to existing shareholders who hold shares at the redemption date, and 0.1 new share to Pipe investors for every share subscribed.

The sponsor will waive its pro rata rights to an equal number of promote shares of VTAC in this special scheme to minimise dilution. 

17Live’s main business is a livestreaming platform with a presence in Hong Kong, Singapore, the US, India, the Philippines and Malaysia as at Jun 30. Viewers buy points – which can be redeemed as items or gifts – on 17Live’s platform, to be used or given to live-streamers.

The company has a revenue-sharing model with live-streamers, under which it takes a cut of the gifts they receive.

In FY2022, 17Live generated a revenue of US$363.7 million, and positive adjusted earnings before interest, taxes, depreciation and amortisation (Ebitda) of US$15.8 million. In the same period, 17Live posted a US$51 million loss.

In FY2020, 17Live posted revenue of US$411.4 million and a loss of US$51.9 million. In FY2021, revenue was US$497.8 million, with a profit of US$109.5 million.

Joseph Phua, co-founder and chairman of 17Live, said the key indicator of the company’s health was the Ebitda figure.

In the first half of 2023, the platform’s average number of monthly active users was about 550,000, and each active user had an average daily view duration of about 93 minutes. The spend rate was 16.1 per cent on a monthly average basis for the period. As at Jun 30, 2023, 17Live had contracts with about 87,000 live-streamers.

These live-streamers are on contracts lasting between one and seven years, said Phua. He said: “We are so profitable because we tie these people down and work with them to create very good content.”

Content on 17Live includes music, games, education and fashion.

The growth drivers for 17Live’s business include V-Livers, or livestreamers who use computer-generated characters to represent themselves; motion-capture technology gives these characters movement, sound and expressions.

The company incubates V-Liver talents which have the potential to become proprietary intellectual property, to be monetised through merchandise and music production sales to enhance user engagement.

In-app gaming and live commerce are other growth drivers 17Live is looking to tap, to increase user engagement during livestreaming. (In live commerce, live-streamers sell products to their audiences.)

VTAC and its sponsor, which have expertise and a proven track record, are seeking to combine with 17Live because of its technology-driven business in the consumer Internet space. The Spac believes in 17Live’s strong growth potential.

While 17Live currently operates mainly in Japan and Taiwan, it could scale up and expand into other South-east Asian markets, since its platforms are already available to users elsewhere. 17Live has been generating revenue and been Ebitda-positive since 2020.

South-east Asia’s livestreaming market, including live commerce, is now worth US$14 billion to US$16 billion. Roshan Raj Behera, partner at consultancy Redseer Strategy Consultants, lists Indonesia, the Philippines, Malaysia and Singapore as being relatively unpenetrated markets. Incumbents in the region include YouTube, Instagram, TikTok and, in Vietnam, Zalo. 

“There is room for players as long as their positioning is differentiated from the large incumbents,” he said.

Livestreaming platforms are also subject to the 80-20 rule, under which 80 per cent of revenue is generated by the top 20 per cent of streamers, he added.  

The recent policy change in Indonesia banning e-commerce payments on social media platforms is also likely to hit the live commerce portion of the livestreaming market, so it is likely to experience a material downtrend in the country, said Roshan.

With evolving regulations, livestreaming companies will have to be aware of and be pro-active in addressing possible issues. And here, having deeper pockets is an advantage.

“While there is growth potential in livestreaming, gaining traction with influencers, audiences and brands/retailers isn’t straightforward,” said Roshan.

The business combination will be conditional on obtaining VTAC shareholders’ approval at an extraordinary general meeting (EGM), regulatory approvals, and 17Live rectifying or resolving issues identified during the due diligence in the financial, legal and tax aspects.

The EGM is expected to be held by early December, with the combination to be completed within the same month, subject to shareholders’ and regulators’ approval.

Shares of VTAC last traded at S$4.81 on Friday (Sep 29).

*Amendment note: The article previously stated that M17 tried to list on Nasdaq instead of the New York Stock Exchange and Vertex Technology Acquisition Company instead of Vertex Technology Acquisition Corporation.