Vertex Technology Acquisition Corporation (VTAC) was Singapore’s first special purpose acquisition company (SPAC) and was listed in Jan 2022.
A SPAC is formed to raise money through an initial public offering (IPO) to buy another company. At the IPO, SPACs do not have business operations or stated targets for acquisition.
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Instead, SPACs have a mandate.
Vertex Technology Acquisition Corporation’s mandate
VTAC’s mandate was to allow public market investors to participate in investment opportunities in value-creating businesses at a fast growth stage of their life cycle.
VTAC intended to acquire a business with a core technology focus, highly differentiated products and scalable business models, with the aim to improve people’s lives by transforming businesses, markets and economies.
To achieve this mandate, VTAC intends to leverage on its sponsor, Vertex Venture Holdings Ltd, a venture capital platform and a wholly owned subsidiary of Temasek.
VTAX’s Target: 17LIVE
VTAC has announced a business combination with 17LIVE with a purchase consideration of up to S$925.1 million, subject to certain financial targets being achieved by 17LIVE, valuing the pro forma equity value of the proposed business combination of up to S$1.161 billion.
What is 17LIVE?
17LIVE is a live streaming platform and the top pure-play live streaming platform by revenue in Japan and Taiwan with 20.8% and 26.9% market share respectively.
For 1H FY2023, 17LIVE had an average Monthly Active Users (MAU) of approximately 550,000 with an average daily view duration per daily active user of approximately 93 minutes and a Spend Rate of 16.1% on 17LIVE on a monthly average basis.
To attract users,17LIVE had entered into contracts with approximately 87,000 live streamers.
To engage its users and generate revenue, 17LIVE complements its online events with offline events. For example, if there is an online competition, there will be an offline finale. There are also offline events carried out to better engage its users.
The monetisation model of the business is quite similar to other live streaming platform. 17LIVE sells virtual points, appreciation gifts, goods and in-game virtual items. A portion of these revenue would be shared with the live streamers.
VTAC and 17LIVE believes it has a scalable business model with improving profitability. In 2022, the Target Group generated revenue of US$363.7 million.
17LIVE a positive EBITDA track record, achieving positive EBITDA since 2020 and generating adjusted EBITDA of US$15.8 million in 2022.
The Public listing on SGX-ST will reinforce 17LIVE’s business momentum as the premier pure-play live streaming platform and fuel new business growth such as V-Liver and regional expansion into high growth markets such as Southeast Asia and U.S.
What’s next in the SPAC Merger process for VTAC?
The proposed business combination is subject to the approval of SGX and VTAC’s shareholders at the EGM, which is expected to be held in end 2023. VTAC will be renamed 17LIVE Group Limited at completion of the proposed business combination.
A timeline for completion has not yet been provided but will likely follow through after the EGM.
VTAC will acquire 100% of 17LIVE for the purchase consideration of up to S$925.1 million to be satisfied by the following:
- the allotment and issuance of up to 160,605,109 new shares at the issue price of S$5.00 to 17LIVE amounting to S$803.0 million, and
- subject to the satisfaction of certain financial targets, the allotment and issuance of up to 24,408,000 new shares at the Issue Price of S$5.00 to each of the eligible shareholder that remains as a shareholder as at the applicable earnout record date on the respective earnout vesting dates, being 30 April 2024 and 30 August 2024, amounting up to S$122.0 million.
Special bonus shares will be allotted to VTAC shareholders, with 0.1 new share at S$5 each to existing shareholders who hold shares at the redemption date, and 0.1 new share to PIPE investors for every share subscribed.
The Special Bonus Shares will be allotted and issued at completion and will provide an incentive for existing shareholders to not opt to redeem their shares. In addition, they will also provide an incentive for PIPE Investors to participate in the PIPE Financing.
VTAC’s sponsor will waive its pro rata rights to an equal number of shares of VTAC in this special scheme to minimise dilution.
Why did VTAC select 17LIVE?
VTAC has provided the following rationale for the acquisition of 17LIVE:
(a) 17LIVE is a technology-driven business in the consumer internet and technologies industry, which is one of the industries in which the Sponsor and the management team of VTAC has deep expertise and a proven track record;
(b) 17LIVE presents strong growth potential as evidenced from its multiple growth drivers (such as the new V-Liver business, live commerce and in-app games);
(c) while 17LIVE currently operates mainly in Japan and Taiwan, its platforms are available to live streamers and users from the U.S., Hong Kong, Singapore and other Southeast Asian markets and there is potential for 17LIVE’S operations to be scaled up and expanded across these regions;
(d) 17LIVE has been generating substantial revenue and has been EBITDA positive since FY2020; and
(e) 17LIVE is led by a strong management team with professional expertise in various areas such as consumer technology and product development, cross-border business operations, finance and corporate management.
5 Insights You Need To Know about Singapore’s First SPAC Merger
1) Potential redemptions
Similar to any other SPACs, there is an option for existing shareholders to redeem their shares if they do not want to participate in the SPAC.
The level of redemption is a strong indicator of confidence in the target and also determines the financial power of the combined entity at inception.
The tables below present the financial effects on the net tangible assets and earnings of potential redemptions. The figures being presented sits on the two ends of the spectrum of possibilities and it is likely that the financial effect is in between the two range of figures.
In a scenario of maximum redemption, the NTA per share decreases substantially as there is less cash. Considering the share price of $5/share, this would bring the price to book multiple to about 25 times
The maximum redemption scenario does not affect earnings so significantly as profit decreases from 4 cents per share to 3 cents per share.
2) Potential regulatory headwinds in the short term
With the increased use of live streaming, there has also been an increase in concern for the misuse of the new format, especially since live streams are not a permanent form of content. Examples of these concerns include vulgar or illegal content, fraudulent activity, and misrepresentation of products or services sold through live streaming, which could include false promotions and poor quality of products.
Governments across the world have been progressively implementing new regulations and some may seem strict and there is a lot of scrutiny on live streaming activity in countries such as China. However, they are unlikely to impact the popularity and conversely, it may become even become more popular due to the additional trust that viewers will have.
3) Failed US IPO
17 Media (Now 17LIVE) was founded in 2015.
In 2018, the company attempted to list on Nasdaq in 2018 as M17 Entertainment, but withdrew this listing plan when an investor failed a know-your-customer check. The company declined to comment on whether it will undertake a dual listing in the US after the combination.
As it is unknown if this investor is still part of the company, this is a point worth highlighting.
4) Valuation
In FY2022, 17Live generated a revenue of US$363.7 million, and positive adjusted EBITDA of US$15.8 million. The adjusted profit/loss ranges between -$2.9m to $7.2m.
The IPO valuation of S$1.161 billion or approximately US$860 million puts the valuation of the company at price to sales of 2.4 times and EBITDA multiple of 54 times.
The cashflow from operations and free cash flow is also lacklustre and the earnout framework will incentivize the key shareholders to deliver profitability.
As the earn out period is relatively short, being April and August 2024, it is important for investors to review the details in due course to understand the criteria for this earnout.
5) Potential in Virtual livestreamer
Virtual livestreamer or V-Livers are a type of computer-generated character developed with the help of AI designed to resemble real people. There are human actors behind the V-Livers, whose movements, sounds and expressions are simultaneously reflected on the V-Livers by using motion capture technology or software.
This allows 17LIVE to create innovative and creative V-Liver content through the expansion of organic V-Livers and the development of V-Liver proprietary intellectual property. In addition, V-Liver proprietary intellectual property unlocks new monetisation channels such as offline merchandise sales and music production sales which enhances user engagement.
Singapore’s first SPAC merger is worth watching even if you’re not an investor
After a long wait, the first SPAC merger has finally been initiated. There are high expectations as a good performance will serve to provide investor confidence for future SPACs.
We have shared our insights on the 5 things to note, namely the level of potential redemptions, regulatory environment in which the industry operates, the history of the company’s failed IPO, valuation and growth potential of its virtual livestreamer segment.
