VTAC chairman: Real work is in finding right business target, getting investors to stay

Benjamin Cher

Published Wed, Jan 19, 2022 · 11:07 AM

THE real work for Vertex Technology Acquisition Corporation (VTAC) doesn't end after the merger with a business, but will extend beyond that, said Chua Kee Lock, non-executive chairman of VTAC.

Likening the initial public offering (IPO) to a mid-term exam, he said his focus is on getting the special purpose acquisition company (SPAC) past the "final exam" - finding the right business target and convincing investors to stay past the business combination and beyond, post-IPO performance.

"We will still need to continue to perform well in our respective job tasks, that will be beyond the final exam," he told The Business Times.

The terms and conditions for VTAC's allotment of 10 million shares after completion of the business combination or promote shares have time-based and price-based vesting conditions. The sponsor, Vertex Holdings, can only vest 49 per cent of the promote shares 12 months after the business combination, and 17 per cent of the promote shares should shareholder return exceed 20 per cent or at a S$6 share price, 40 per cent or a S$7 share price and 60 per cent or a S$8 share price.

With incentives for the sponsor Vertex aligned beyond the initial business combination, now all it has to do is find the right technology company. Vertex has an advantage in this, with its experience identifying promising technology companies to invest in - not all too different from looking at business targets for a SPAC, said Chua.

The whole process of identifying and understanding the technology company, assessing its disruptive innovation, the team running it and its upside potential is a discipline Vertex is familiar with.

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"That is our competitive advantage because of our background, and that is why we should be able to identify the right target over time," said Chua.

The right target though, is unlikely to be a US-based company. More than 400 US-based SPACs are looking for a business to merge with, so there is little point in competing in a crowded space.

However VTAC isn't just focusing on any specific geographical region outside the US. Chua said: "There are some very good companies in Europe, Israel and other parts of Asia; these are the companies that are probably around the sweet spot. We will have to work through the list."

But Singapore's track record for tech IPOs is nearly non-existent, with the Singapore Exchange being more well known as a real estate investment trust (Reit) market, and investors seemingly looking for yield rather than growth stocks.

Undertaking an IPO is a costly affair for any company. It has to hire bankers and look for a suitable market to list at, and at the desired valuation as well - all tasks carrying risk at every step.

However, with a shortened process of listing via a business combination as well as promised support from Vertex post-IPO - such as in the opening of doors for business development and talent recruitment - VTAC is hoping this will attract potential business targets to merge.

"So it shortens the whole process of listing on the Singapore Exchange for technology companies, and that risk is somewhat mitigated," said Chua.

Still, there is the issue of investor education. Retail investors typically focus on traditional metrics like price-to-earnings ratio, rather than that of price-to-sales ratio, which technology companies use, he noted.

But that will come in time, and along with the two other SPACs which are also focusing on the technology sector, a good showing of the target businesses could attract more tech companies to list in Singapore as well.

This would benefit not just retail investors, but the startup ecosystem in Singapore. The Republic still attracts a good share of capital for startup investment in South-east Asia; the recent Cento Ventures report for H1 2021 noted that Singapore attracted nearly a third (32 per cent) of the US$4.4 billion in capital, behind only Indonesia at 51 per cent. Singapore could provide an avenue for venture capital to exit as well.

"A vibrant Singapore exchange market is good for all of us, not just Vertex alone, any venture capital company will be happy to support this," said Chua.

While he has previously said that VTAC will consider targets both within and without its portfolio, he admits that being familiar with the portfolio could be an advantage. Vertex's portfolio includes unicorns such as banking API provider Nium, and patent intelligence platform Patsnap, as well as live streaming and social media platform M17.

Chua also stressed that the assessment of any target company will still hinge on which will have a higher probability of success and is understood by investors in Singapore.

"Our goal is to support this initiative by [the Monetary Authority of Singapore] and SGX to make the market more vibrant, our goal is not to inject a lemon into the vehicle and take the money and run away," he said. "We are looking for discerning investors who can exercise good judgement like us, convince them to stay and ride through the future appreciation."

Units of VTAC start trading at 2pm on Thursday (Jan 20).

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