PSPCs face new test: wave of operations focused on Asia

The vehicles are publicly traded shell companies with cash reserves ready to invest in and merge with private companies. They have been touted by investment bankers as an easier way for startups to go public. If a PSPC fails to find a merger target by a deadline, typically two years, investors could get their money back.

As of Feb. 18, eight PSPCs sponsored by Asian companies have raised a total of $ 2.3 billion this year, according to Dealogic data. The sum is small compared to what was raised by US companies, but it has already exceeded the total raised from the region’s PSPCs for the whole of 2020. Bankers believe more emissions are likely, including including those of private equity groups.

“This is a compelling pocket of capital that all major private equity and venture capital firms in Asia will consider,” said Udhay Furtado, co-head of Asian capital markets at Citigroup. Inc.

Recent transactions include the $ 360 million NYSE listing of Primavera Capital Acquisition Corp.

, backed by a private equity firm founded by Fred Hu, former chairman of the Goldman Sachs group Inc. of

Greater China Affairs. Other supporters of the blank check vehicles include Hong Kong billionaire Richard Li, son of tycoon Li Ka-shing, and Chinese rainmaker Fang Fenglei.

They all flocked to the United States – where investors put money into blank check companies – because larger exchanges in Asia have not allowed those companies to list. The Singapore Stock Exchange is considering a public consultation to authorize the SPAC listings after reviewing the matter in 2010.

The exuberance has sparked debate among private equity investors and investment bankers over whether the trend will continue and whether there will be enough suitable targets to merge with if the pace of fundraising of funds continues. Most of the Asia sponsored PSPCs aim to merge with regional companies or multinationals planning to expand in the region.

“People notice and watch,” said Raghav Maliah, co-director of mergers and acquisitions in Asia, excluding Japan, at Goldman Sachs. He said the test will be whether companies can pass “de-SPAC,” a term used to describe their possible acquisitions of operating businesses.

“If this is the case, as with everything, success breeds success. Otherwise, it could be a setback for the entire asset class, ”added Maliah.

So far, Asian companies opened through PSPCs in the United States have largely disappointed investors. One of the largest mergers of its kind was the $ 1.4 billion listing of United Family Healthcare. A chain of high-end private hospitals in China, the company went public on the NYSE in December 2019 through a SPAC issued by New Frontier Group, an investment firm led by former Hong Kong financial secretary Antony Leung.

For more than a year, shares in New Frontier Health, the merged entity, have traded below the price of $ 10 per share they were originally sold, a sign the deal had failed. been well received by investors. Last week, the company said a consortium led by Mr. Leung was planning to privatize it, sending the share price above $ 11.

David Zeng, managing director of New Frontier Group, said the company “strives to create value [for] investors / shareholders ”and the proposed buyout would provide a 32.5% return to those who invested in the initial blank check IPO.

When targeting companies based in Asia, PSPCs face additional challenges. “One of the biggest hurdles is overcoming the concerns of US investors about the impact of geopolitical tensions on issues such as trade and technology transfer,” said David Shen, managing director of Olympus Capital Asia, which raised $ 130 million in January to invest in American companies. who intend to expand in the region.

The rapid growth of PSPCs has also raised concerns, even among those who believe in the value of these vehicles as a source of capital and investment, about overpriced offers or the lack of appropriate targets.

“There is a little fear [about SPACs] because it’s too new for some people and has grown too fast, ”said Joaquin Rodriguez Torres, Hong Kong-based managing partner of private equity firm Princeville Capital, which raised $ 300 million last month on the Nasdaq and targets technology companies in Europe and Asia.

Benjamin Kwasnick, founder of SPAC Research, said there are 335 PSPCs listed in the United States. He said they had collectively raised over $ 100 billion, which was being placed in so-called trust accounts.

“PSPCs typically look for businesses at least three to five times the amount of cash in their trust account, which could mean at least $ 300 to $ 500 billion in publicized enterprise value from PSPC’s current crop. “, did he declare.

In Asia, Goldman’s Maliah estimates that about 400 to 500 companies are looking to list in the next two to three years. Some startups might opt ​​for a SPAC merger as a way to go public faster.

Write to Jing Yang at [email protected]