Peter Thiel
Bridgetown Holdings, a special purpose acquisition company (SPAC) formed recently by Peter Thiel’s Thiel Capital and Pacific Century, on Thursday filed for an initial public offering (IPO) with the US Securities and Exchange Commission to raise up to US$500 million.
A Renaissance Capital report says, the Hong Kong-based Bridgetown “plans on targeting a company in Southeast Asia with operations or prospective operations in the technology, financial services, or media sectors”.
What is SPAC and what does it mean?
As per Investopedia, SPAC is a company with no commercial operations that is formed strictly to raise capital through an IPO to acquire an existing company. They are also known as blank-check companies.
While the concept has been around in the market for many years and is used as a mechanism to bring companies public in the US, it has been relatively new to Asia, where companies are yet to jump on the SPAC bandwagon.
There could be many reasons for this “lack of enthusiasm” among Asian companies, one being that SPAC has less shine compared to a traditional IPO because perception-wise, it provides a less-than-ideal signal to the strength of a business.
“Conventional wisdom points to companies preferring typical IPO route where they get to go on a roadshow to raise funds, project a positive image or branding, and by way of market forces, command for competitive pricing,” says Dave Ng, General Partner of Altara Ventures, a newly-launched US$100 million plus fund in Singapore.
Also Read: What Ant Group’s upcoming IPO means for the Southeast Asian startup ecosystem
Notwithstanding, SPAC brings into table many benefits for companies looking to raise capital. Speed is one, meaning SPAC is faster than a traditional IPO and it involves less process and legwork needed to go public. It can also be a great way to introduce liquidity into tech companies as well as experienced executive talent into private companies.
“Because of these advantages, people are increasingly turning to SPAC as an alternative. Recent examples include DraftKings and Virgin Galactic,” Ng adds.
What does Bridgetown IPO mean for SEA?
No doubt, SPAC means more pathways to exits and liquidity for Southeast Asian (SEA) companies. It is also a great validation of the long-term potential for the region and its founders, employees and investors, experts feel.
“This is just another example of how Southeast Asia will be a driver of growth globally over the next five to ten years,” says Vinnie Lauria, Managing Partner, Golden Gate Ventures.
Specifically, Bridgetown’s targeting a tech or media company in Southeast Asia implies a few things: 1) the trend is picking up in the region, given the need for a quicker option to go public, and 2) there is also an appetite in the market coming from investors and as well as companies in the region’s tech and media industry.
Agrees Sanjay Zimmermann, Senior Associate at White Star Capital, saying he sees more SPACs being announced in the future. “Having seen the more than 100 SPACs emerge in North America earlier this year, we are not surprised to see this new SPAC coming out to focus on Southeast Asia. We welcome this initiative, which will provide an alternative path to liquidity and access to public markets for one or more rising tech, financial services or media company in the region.”
“We expect to see more Southeast Asian SPACs being announced over the coming months and look forward to seeing the impact that this will have on generating a new path to exit and/or funding for startups in the region,” Zimmermann predicts.
Echoing a similar view, Chia Jeng Yang, Principal at Singapore-based Saison Capital, shares that SPACs can be an excellent way to balance both global public investor exposure to the region as well as allow leading tech companies to focus on building its future.
“As SPACs allow for companies to customise their entry into the public markets (through how much/when they sell, lockup periods, incentive instruments, etc), they can be helpful for companies that may have a longer-term growth story,” shares Yang.
What is the flip side?
Data suggests that SPAC is witnessing a boom in the US. According to Pitchbook, the amount of SPACs in the US rose drastically to over 100 in 2020 from just 46 in 2019.
This is expected to have some reverberations in Asia as well, given IPOs are becoming harder due to the situation created by the COVID-19 outbreak.
But can SEA companies make the most of SPAC?
Although SPAC usually means the buyout of a huge stake in one selected company, it may not mean much for companies in SEA, according to Sergei Filippov, Managing Partner, Morphosis Capital Partners.
“I do believe that majority of SEA startups won’t see this money coming in and won’t benefit from SPAC, as these are not traditional early-stage VC investments with multiple startups in a portfolio,” predicts Filippov.
Instead, this money (US$500 million being raised by Bridgetown) will be perfectly targeted to merge with the soon-to-be-acquired company to eliminate the pricing uncertainty that comes with traditional IPOs.
In his view, the Bridgetown IPO might also be related to Palantir Technologies’s delayed IPO and is an attempt to get funding from Singapore’s Temasek Holdings.
“But it is too early to say that but let’s see how this money will be used,” concludes Filippov.
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Image Credit: Founders Fund
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