Grab nabs world's biggest Spac deal but traders hold their applause as market fervour eases

Grab said it will list on US exchanges through a reverse merger with Altimeter Growth in a deal valued at nearly US$40 billion (S$53.5 billion).
Grab said it will list on US exchanges through a reverse merger with Altimeter Growth in a deal valued at nearly US$40 billion (S$53.5 billion).PHOTO: AFP

NEW YORK (BLOOMBERG) - Grab is set to nab the record for biggest deal in the Spac world, yet traders are holding their applause.

The Singapore-based firm said it will list on United States exchanges through a reverse merger with Altimeter Growth in a deal valued at nearly US$40 billion (S$53.5 billion) that drew institutional backing from heavyweights like T. Rowe Price Group and Singapore investment company Temasek.

As it stands, the blockbuster tie-up would be the largest special purpose acquisition company (Spac) merger ever, dwarfing the one announced between Lucid Motors and Churchill Capital IV in February, valued at US$24 billion. The transaction is expected to close in July and the company will trade at the Nasdaq with the catchy symbol GRAB.

But investors do not seem much interested in seizing this Spac opportunity.

Shares of Altimeter Spac rose on the day merger rumours surfaced, but modestly relative to others, and they have since fallen towards pre-announcement trading levels in the latest example of Spac market pain.

Gone are the 2020 days of indiscriminate Spac deal pops, when everyone wanted to play the deal announcement, Spac index founder Josef Schuster told Bloomberg in an interview. Excitement came fast and easy, which dissipated after a series of "lousy" showings from the companies post-deal, Mr Schuster said, noting that the Spac index has gone nowhere this year.

"Maybe the idea is that those deals shouldn't get a pop in the first place," Mr Schuster said. "If anything, the market is more efficient now."

The second- and third-largest deals - Mr Michael Klein's Spac with Lucid Motors, and Mr Alec Gores' Spac with United Wholesale Mortgage Group, the latter deal valued at US$16 billion - have not translated into big gains thus far. The Churchill Spac is 66 per cent off its peak and UWM Holdings now sits at under US$8 after completing its reverse merger earlier this year.

Traders reference the Churchill-Lucid announcement in late February as "peak Spac" - when the deal value broke, shares of the Spac fell and catalysed a sell-off in that market that led to hundreds of pre-deal Spacs sliding under their initial public offering prices of US$10. Meanwhile, regulators have turned up the heat on Spacs and the feverish pace of Spacs coming to market have slowed to a crawl.

While history favours pre-deal Spac performance, buying shares of companies that emerge from Spac combinations and holding them for one year results in an annualised loss of 15 per cent on an equal-weighted basis, according to data from University of Florida finance professor Jay Ritter, who tracked such deals from January 2010 to October 2020.

Perhaps investors keen on size should be paying attention to the biggest companies to emerge from Spacs based on market capitalisation, which would ultimately determine whether they land in major index funds and exchange-traded funds. That would be DraftKings at about US$23 billion, Opendoor Technologies for US$11 billion, and Paysafe around US$9 billion as of Monday night.

Whether Grab will crack those ranks remains to be seen.