Singapore

THERE is growing interest among US-listed Special Purpose Acquisition Companies (SPACs) to acquire South-east Asian tech firms, thanks to investors' hunt for growth amid a slowing global economy, industry players tell The Business Times (BT).

SoHo Advisors, a Singapore-based fintech investment bank, sees a growing appetite among US-listed SPACs for South-east Asian fintech firms in particular, its chief executive Frank Troise said.

Case in point: his firm has begun facilitating discussions between regional fintech firms and Lefteris Acquisition Corp, a Nasdaq-listed SPAC focused on fintech and financial services, that raised US$200 million via an initial public offering (IPO) in October.

Karl Roessner, Lefteris' chief executive, said that the firm is evaluating targets in South-east Asia, among other global markets, due to the region's "cutting-edge" fintech scene.

Mr Roessner was previously chief executive of E*Trade Financial Corp, a US-based online broker. The SPAC's chairman, Mark Casady, was previously chief executive of US-listed broker-dealer LPL Financial.

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Beyond Lefteris, Mr Troise said that SoHo is in discussions with close to 50 other US-listed SPACs looking at South-east Asia specifically for fintech targets, and has also been providing target market research.

How South-east Asia's tech firms, particularly the unicorns, react to the SPAC suitors will be keenly watched. This is especially since investor sentiment towards mergers with US-listed SPACs completed last year varies greatly between the outperformers and underperformers (see table on Page 2).

Also known as a blank-cheque company, a SPAC is a shell entity formed by a group of investors - known as sponsors - who raise capital from other investors via an IPO. The purpose is to acquire a target business within a set timeframe.

Once the target is found, it combines with the SPAC into a publicly-traded operating company, in what is known as a "de-SPAC" process. But if the sponsors fail to find a target by the deadline, the capital is returned to investors.

Mr Troise reckons that South-east Asia is fertile ground for US-listed SPACs, especially in the fintech realm. He said: "It became very apparent that the fintech opportunity was extraordinary here in South-east Asia, and the value proposition was actually a lot stronger than it is for companies in the US.

"It's extraordinary when you hear about the numbers coming from South-east Asia. For example, some of the platforms will talk about several hundreds of millions of users."

Singapore's digital banking regime has added to the excitement, as firms here could ride "the massive growth potential" of the underbanked populations regionally. Beyond fintech, Mr Troise also anticipates more interest from US-listed SPACs focused on broader tech, as well as healthcare.

South-east Asia is challenging territory given the fragmented market, Mr Roessner of Lefteris acknowledged. However, the untapped potential is still attractive to global investors.

"The US markets are looking for companies (with) strong growth year-over-year. Many of the companies that we've seen coming from South-east Asia fit that bill very well… having that recurring revenue stream that comes from the fintech software model," he said.

Another US-listed SPAC eyeing South-east Asian tech firms is Nasdaq-listed Provident Acquisition Corp. The entity's chairman is Winato Kartono, a founder of regional investor Provident Group and commissioner on the board of Gojek, according to the SPAC's prospectus.

The SPAC's chief executive is Michael Aw, a founding partner of Provident Growth, a fund under Provident that has invested in regional startups including Gojek, Traveloka, Pomelo Fashion and JD.id, an Indonesian joint venture with China's JD.com.

Mr Aw told BT that the SPAC is well-placed to evaluate South-east Asia given the sponsor's track record. "If you look at our management team, we have a lot of experience in South-east Asia, and we've founded and built several large companies here; we've listed a few of our own companies which are now worth US$3 billion to US$4 billion each," he said citing Indonesia-listed Tower Bersama as an example.

Like Provident, other familiar names are jumping onto the SPAC bandwagon with a focus on South-east Asia. For instance, Catcha Group, co-founded by entrepreneur Patrick Grove, has filed to raise US$250 million for a SPAC targeting tech firms in South-east Asia and Australia. Called Catcha Investment, the SPAC could start trading on the New York Stock Exchange in mid-February.

Earlier in December, the Nasdaq-listed SPAC Bridgetown Holdings reportedly approached Indonesian e-commerce unicorn Tokopedia to evaluate a merger. Backed by billionaires Peter Thiel and Richard Li, the SPAC had raised US$595 million in its IPO.

Fellow regional unicorns Grab, Gojek and Bukalapak have been reportedly approached or are targets for SPACs as well, according to a December Financial Times report.

"The surge in SPAC IPOs in the US last year will likely translate into greater acquisition activity in the global capital markets, and we can expect more de-SPAC activities in the next 12 to 24 months," said Tham Tuck Seng, capital markets leader at PwC Singapore.

"South-east Asia's unicorns, especially those from the technology, media and telecommunication sectors, will be attractive targets given their high growth potential."

Amid all the hype, what remains to be seen is whether the South-east Asian unicorns themselves would opt for a SPAC listing, over a traditional IPO.

One factor that could encourage them to do so is the lower costs, as well as the ability to release forward-looking guidance which cannot be done in an IPO prospectus, said Mr Troise.

Time to market is another factor. "A traditional IPO process is going to take much longer, and in the current climate more difficult to execute, especially if companies are eyeing listings beyond their home markets," said Hwee Ang, founder and principal consultant of Anagram Advisors, which works with venture capital and private equity firms.

In addition, the timing may be right, as "investors in US would be seeking investment ideas ex-China, whereas those in Hong Kong will be looking for fresh concepts outside of Chinese offerings", she said.

That said, there are factors that may deter South-east Asian tech firms from SPAC mergers.

The dilution of control may give some pause, as the SPAC sponsor usually takes 20 per cent of the equity.

In addition, SPAC listings may face retail investor scepticism, "especially if there are no strong backers attached to the transaction", said Ms Hwee.

"Such scepticism can reflect for an extended period of time in the post-merger trading performance of the stock, so this may cause some companies to bite the bullet and hold out for an IPO or direct listing," she said.

Mr Tham of PwC also said: "A traditional IPO may offer a more complete price discovery process as the offer price is based on 'book building' with the investors at large."

Perhaps most crucial would be the track record of the SPAC sponsors. "The relationship between the SPAC sponsors and the startups' management is critical as they will need to work together, at least in the short to medium term, to complement the business strategy of the startups," he said.