Blank-cheque company craze that has taken Wall Street by storm spreads to Asia

Special-purpose acquisition companies nearing post-IPO deadlines eyeing Asian region for businesses to acquire

HONG KONG • Funds and financiers in Asia are leveraging their deal-sourcing capabilities and understanding of United States capital markets to jump on one of the hottest bandwagons on Wall Street - special-purpose acquisition companies, or Spacs.

Among them is former Deutsche Bank 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, which just raised US$345 million (S$459 million).

Others diving into the action include LVMH-backed L Catterton's Asia unit, Hong Kong tycoon Richard Li, Singapore-based healthcare 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."

Called blank-cheque companies, Spacs raise money from investors, then look to acquire another business, usually a private one.

A record 248 Spacs debuted on US exchanges last year, raising nearly US$83 billion, and at least 93 have 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 being listed is racing against time to identify targets they can acquire before their 24-month post-initial public offering expiration dates arrive.

"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 strategists led by Mr David Kostin wrote in a note last Wednesday.

North America-based Spacs account for 85 per cent of the global market, and Asian-based ones only 5 per cent, according to data compiled by Bloomberg. While the United Kingdom and Canada also allow Spacs, the US is the largest venue for such entities.

The old hands of Asian finance are now trying to monetise their understanding of the region's companies - especially Chinese technology firms - 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 Mr Mitchell Presser, co-chair of Morrison & Foerster's global corporate department. "A lot of these Spacs will be looking at Asia for de-Spac-ing opportunities."

But anyone looking for targets could run into a supply and demand issue. There are not 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, 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.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on February 03, 2021, with the headline 'Blank-cheque company craze that has taken Wall Street by storm spreads to Asia'. Subscribe