SPACs eye Asia as next hunting ground for takeover targets

New York

THE blank-cheque company craze that's taken Wall Street by storm is now spreading to Asia. A raft of funds and financiers in the region is leveraging their deal-sourcing capabilities and understanding of US capital markets to jump on the bandwagon with special-purpose acquisition companies, or SPACs.

Among them is former Deutsche Bank AG and Lehman Brothers banker Joaquin Rodriguez Torres, who is now talking with more than a dozen companies in the region for his SPAC Poema Global Holdings LLC that just raised US$345 million. Others diving into the action include LVMH-backed L Catterton's Asia unit, Hong Kong tycoon Richard Li, Singapore-based health-care entrepreneur David Sin and former hedge fund manager George Raymond Zage.

"Asia is the next big treasure trove for SPAC candidates," said Mr Torres, co-founder of investment fund Princeville Capital. "Funds that have expertise in both companies operating in Asia and how US capital markets work hold significant advantage." Known as blank-cheque companies, SPACs raise money from investors and then look to acquire another business, usually a private one.

A record 248 SPACs debuted on US exchanges in 2020, raising nearly US$83 billion, and at least 93 have already begun trading this year.

With trillions of dollars in stimulus flooding into the global economy and investors betting on a sustained rally in capital markets this year, the flurry of SPACs that has listed is racing against time to identify targets they can acquire before their 24-month post-initial public offering expiration dates arrive.

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"Based on their 24-month post-IPO expiration dates, these SPACs will need to acquire a target in 2021 or 2022, nearly equal to the total enterprise value of SPAC deal closures during the last decade," Goldman Sachs Group Inc strategists led by David Kostin wrote in a note on Wednesday.

North America-based SPACs account for 85 per cent of the global market, with Asia only 5 per cent, according to data compiled by Bloomberg. While the UK and Canada also allow SPACs, the US has become the largest venue for such entities. The old hands of Asian finance are trying to monetise their understanding of both the region's companies - especially Chinese tech - and US capital markets.

About 300 SPACs are under pressure to de-SPAC - merge with their target companies - this year according to law firm Morrison & Foerster, or face the danger of being disbanded, given the 24-month time limit.

"If 2020 was the year of the SPAC, 2021 is the year of the de-SPAC," said Mitchell Presser, co-chair of Morrison & Foerster's global corporate department. "A lot of these SPACs will be looking at Asia for de-SPACing opportunities." But anyone looking for targets could run into a supply and demand issue. There aren't that many quality potential companies to merge with compared with the number of SPACs currently around, according to Mr Sin, whose 2019 SPAC SC Health Corporation raised US$150 million.

"Well-sought-after companies in Asia are so hot that they are holding 'SPAC-offs', the equivalent of bake-offs, and the sponsors have to line up to do beauty shows," he said.

At the same time, interest from within the region is growing. Mr Sin is seeing a spike this year in interest from Asia limited partners, including institutions, private equity funds, high-net-worth individuals and private banking money.

The industry is also rife with risks and investors including Mr Sin and Liao Ming, a former Morgan Stanley banker, say a wave of SPACs could become defunct as many struggle to find acquisition targets. The craze has spilled into the electric vehicle space, and many companies that have yet to launch commercial products have taken advantage of that.

"We're going to see a lot of competition among sponsors fighting for companies in Asia," said Beijing-based Mr Liao, the founding partner of Prospect Avenue Capital, an investment fund overseeing US$500 million of assets focusing on mostly tech deals in China. "To pull off a successful SPAC you need to have not only a famous sponsor but also great deal-sourcing ability." BLOOMBERG