In an effort to revitalise our local capital market, SGX announced new rules that would enable Special Purpose Acquisition Companies (SPACs) to list on its mainboard, which became effective on 3 September 2021. To start the year, two SPACs, Vertex Technology Acquisition Corp (VTAC) (backed by Temasek) and Pegasus Asia, released their preliminary prospectus for an initial public offering (IPO).
If all goes according to plan, VTAC will be listed on 20 January 2022, while Pegasus Asia will be listed four days later, on 25 January 2022.
Alvin shared his thoughts on which companies would Singapore’s 1st SPACs merge with here.
What is a SPAC?
If you’re an investor, you must have heard of SPACs by now. These are essentially blank cheque companies that was formed to acquire companies and take them public. Being a blank cheque company also means that SPAC has no prior operating history which investors could base their decision whether or not to invest.
Nevertheless, SPAC has become popular recently since it offers several advantages to companies that are considering going public. Some of the benefits offered by SPAC are lower overall listing expenses, shorter time, favourable valuation that is not affected by market conditions or listing time and access to the SPAC sponsor’s experienced management teams. For investors, SPAC gives them access to high-growth companies that haven’t gone public yet.
A typical process for SPAC would start with the formation and IPO phase (which is what we’re seeing now with VTAC and Pegasus Asia). Then these SPAC would look for appropriate targets to acquire. If a suitable one is identified, a shareholder meeting will be held to approve of it. Once the shareholders come to an agreement, the SPAC will merge with the target firm, resulting in the de-SPAC phase where the SPAC will cease operations. In this phase, the shareholders would now own the target company’s shares. While there is no way of knowing how long it will take the SPAC to merge, under the SGX SPAC framework, de-SPAC must occur within 24 months of the IPO, with a 12-month extension possible if specific requirements are met.
Speaking of SGX’s SPAC framework, here are the key features that any SPAC considering listing on SGX must have.
- Minimum market capitalisation of S$150 million.
- De-SPAC must take place within 24 months of IPO with an extension of up to 12 months, subject to fulfilment of prescribed conditions.
- Moratorium on Sponsors’ shares from IPO to de-SPAC, a 6-month moratorium after de-SPAC and for applicable resulting issuers, a further 6-month moratorium thereafter on 50% of the shareholdings.
- Sponsors must subscribe to at least 2.5% to 3.5% of the IPO shares/units/warrants depending on the market capitalisation of the SPAC.
- De-SPAC can proceed if more than 50% of independent directors approve the transaction and more than 50% of shareholders vote in support of the transaction.
- Warrants issued to shareholders will be detachable and maximum percentage dilution to shareholders arising from the conversion of warrants issued at IPO is capped at 50%.
- All independent shareholders are entitled to redemption rights.
- Sponsors promote a limit of up to 20% of issued shares at IPO.
These requirements, which are incorporated into the framework, aim to increase the sponsors’ skin in the game and align their interests with the shareholders. SGX has also placed a strong emphasis on the sponsors’ quality and track record, which is critical because it is the sole criterion by which investors can assess a SPAC.
With such a framework, investors would hopefully have more options and opportunities in SGX, and it wouldn’t leave them with any bitter aftertaste.
With that, let’s talk about the two SPACs that are listing.
Vertex Technology Acquisition Corporation Ltd
VTAC, sponsored by Temasek’s Vertex Venture Holdings Ltd, is offering 40 million units at S$5 per unit during its IPO. From the total, 11.2 million units will be allocated for international placement and 0.6 million will be offered to retail investors. The remaining units will be issued to cornerstone investors (22.2 million cornerstone units) and the Sponsor itself (6 million Sponsor IPO Investment Units).
VTAC’s market capitalisation will range from S$200 million to S$211.8 million upon listing, with 40 million units and a possible over-allotment to 42.36 million units. The total cornerstone units held by its 13 cornerstone investors will account for approximately 55.5% of VTAC’s post-offering share capital.
Note the differences between Units, Shares, and Warrants in this diagram. 1 unit is equal to 1 share plus 0.5 warrants.
Who is the Sponsor?
Vertex Venture Holdings Ltd, a Temasek-backed global venture capital platform that provides investment and operational support to a network of venture capital funds, is VTAC’s Sponsor.
Vertex has over 30 years of experience investing in innovative technologies and a proven track record of building and divesting portfolio companies on key capital markets in the US, Europe, Singapore, Hong Kong, China, and Taiwan. As of 31 December 2021, through its 18 global network funds and 10 wholly-owned and managed funds, the business is currently managing over US$5.1 billion assets of more than 200 companies.
Potential Acquisition Target
VTAC mentioned in its prospectus that it intends to buy one or more businesses that are technology-focused, fast-expanding, and scalable because it has cross border potential. Well, that sounds the same strategy of other SPACs, so it isn’t really unique.
The company will focus on six investing themes that they believe will be at the forefront of technological transformation. The themes that will be explored are Cyber Security & Enterprise Solutions, Artificial Intelligence, Consumer Internet & Technologies, Financial Technologies, Autonomous Driving and New Energy Vehicles and Biomedical Technologies & Digital Healthcare.
Additional information
Here is a general timeline of the entire IPO to de-SPAC phase, as well as some points to keep in mind. The infographic should give you enough information on what you should pay attention to and what you should do during each phase.
TLDR? Here are some things to keep in mind.
- The IPO units must be applied for in multiples of 100 units, with a minimum of 1000 units.
- Keep in mind that the last day to trade units before they are separated into shares and warrants is scheduled to be on the 45th calendar day after the listing date. If you want to be eligible for shares and warrants once the units are separated, you must own the unit on this date.
- Each unit consists of 1 share and 0.3 of a warrant per share, plus a right to an extra 0.2 warrant per share that will be awarded to shareholders later.
- Each Warrant permits the owner to purchase one share of the company at S$5.75.
An Illustrative example
Confused? Yes, the structure of SPAC is not simple so below is an illustrative example depicting a shareholder who was allotted 1000 Offering Units during IPO.
If the shareholder keeps these 1000 units until 5.00 p.m. on the market day prior to the 45th calendar day after the listing date (wait for the company’s announcement for the exact date), the unit will cease trading on the SGX and will automatically be split into 1000 shares and 300 warrants.
Following that, the shareholder who owns 1000 shares when the initial business combination is completed will be entitled to 200 additional warrants.
The warrants received by the shareholder can then be redeemed during the company’s set exercise period. During this time, warrant holders can exchange their warrants for stock. They would be entitled to one share at a price of S$5.75 for each warrant. In this example, if the shareholder wants to redeem 500 shares from his 500 warrants, then that person will need to pay 500 x S$5.75 or S$2875 in cash.
If these warrants are not redeemed during the 30-day redemption period, they will be converted on a ‘cashless basis’ at a ratio of 1 warrant to 0.361 redemption shares (rounded down to the nearest whole number). In our scenario, 500 warrants is equal to 180 shares (500 x 0.361 = 180.5).
Pegasus Asia
Pegasus Asia’s SPAC structure resembles that of VTAC and is backed by Tikehau Capital, Financière Agache, Diego De Giorgi and Jean Pierre Mustier, who will take up 4.4 million units as the SPAC sponsor. Meanwhile, Pegasus Asia is offering another 25.6 million units at S$5 each, bringing the total number of units for the SPAC to 30 million. This total will be split into two: an international offering with 24.6 million units for institutional investors and a retail offering with 1 million units for retail investors.
Similar to VTAC, each offering unit consists of one share and one-half of a whole public warrant. Redemption of warrants is priced at S$5.75 per share and follows the same mechanism as VTAC, so you may refer to the info above for the entire redemption procedure.
With 30 million units and a S$5 offering price, this SPAC’s market capitalisation would be S$150 million, which is less than VTAC’s capitalisation.
Who is the Sponsor?
Pegasus Asia’s sponsors are Tikehau Capital, Financière Agache, Diego De Giorgi and Jean Pierre Mustier.
Tikehau Capital is an alternative asset management firm with €30.9 billion in assets under management as of 30 June 2021 and a compound annual growth rate of 28.5% since 31 December 2016. Tikehau Capital’s experience spans four asset classes (private debt, real estate, private equity, and capital markets strategies), as well as multi-asset and special opportunity strategies.
Financière Agache is a holding business held by Arnault’s family holding company, Agache. Aside from owning 96% of Christian Dior, the corporation is the controlling shareholder of LVMH Moët Hennessy Louis Vuitton and has a broad financial investment portfolio. Financière Agache, with total investments assets of €100 billion (as of 30 June 2021), has invested in several firms over the last 20 years, including AirBnb, BackMarket, ByteDance, Moderna, Riskified, and Uber.
Tikehau Capital is also directly owned by Financière Agache SA and its affiliates.
Mr. Diego De Giorgi is the Co-Chief Executive Officer and Operating Partner of Pegasus Acquisition Company Europe BV, a special purpose acquisition company, since 2021. He has over 25 years of expertise in banking and financial services, including fintech. In addition, he specialises in capital markets and mergers & acquisitions, with an emphasis on sourcing and implementing company combinations as well as advising large organisations and entrepreneurs.
To date, De Giorgi has advised over 100 mergers and acquisitions and capital markets transactions worldwide, including initial public offerings like Ferrari and Moncler.
Mr. Jean Pierre Mustier has also served as the Executive Director, Co-Chief Executive Officer, and Operating Partner of Pegasus Acquisition Company Europe. He has over 35 years of experience in banking and financial services, including fintech. Moreover, he has regulatory and operational expertise gained in various roles in Europe, US, and Asia and most recently as CEO of the European banking group UniCredit. Mustier has served on the boards of several financial institutions, banks, traditional and alternative asset management firms, as well as clearinghouses.
Potential Acquisition Target
This SPAC intends to focus on businesses in technology-enabled sectors, such as consumer, financial, property, insurance, healthcare and medical technology, as well as digital services, primarily but not exclusively in Asia Pacific, in line with the strategy of various funds owned or operated by its Sponsors.
This is fairly broad and rightly so because it will not confine the SPAC to a specific industry, especially since the clock will be ticking after they accomplish IPO. Essentially this SPAC, like other SPACs, is primarily interested in disruptive, new economy enterprises with strong growth potential.
How to Apply
What should you do if you’re interested? Both SPACs accept applications for Public Offering Units via electronic means through DBS Bank Ltd. (including POSB), Oversea-Chinese Banking Corporation Limited, and United Overseas Bank Limited’s Internet Banking websites or ATMs.
A minimum initial application of 1000 Offering Units is required. Any amount larger than that could be done in the multiples of 100 Offering Units.
- Offering for Vertex Technology Acquisition Corp (VTAC) (backed by Temasek) will open at 8 pm on 13 Jan 2022 and close at 12 pm on 18 Jan 22. It will start trading on Singapore Exchange at 2 pm on 20 Jan 22.
- And the public offer for Pegasus Asia’s IPO will opens at 9 pm on 13 Jan 2022 and close at 12pm on 19 Jan 2022
Conclusion
With both VTAC and Pegasus, I hope that Singapore’s exchange will be revitalised as it lagged behind other regional exchanges, such as Indonesia and Thailand. In fact, there were just 8 IPOs last year compared to 11 in 2020. A third SPAC is coming too – Novo Tellus Capital Partners Pte has already received approval from SGX to list a SPAC here. That said, I must emphasise that no matter how attractive SPACs are, there are still risks related to investing in it. We have previously shared why SPACs has experienced more weakness than other stocks here.
First of all, these are newly incorporated companies with no history of operations or revenue. Second, investors in SPAC must have a thorough understanding of the offering units and warrants. If investors do not exercise their Warrants or if other investors exercise their Warrants, their percentage ownership in the company may become diluted. Finally, SPAC faces a deadline to complete acquisitions or risk being delisted. Because of the short timeline, the quality of the company acquisition may not be the greatest for shareholders.
Considering all the risks I mentioned, the most investors can do now is trust the Sponsor to do what is best for its shareholders. This is why the most crucial factor to consider when investing in SPAC is who the Sponsor is. With VTAC being the first SPAC to be listed on SGX and Temasek-backed Vertex as its Sponsor, I’m sure it would want to set the right trajectory for future listings. It doesn’t want investors to leave with a bad taste in their mouths, sabotaging SGX’s potential to become an Asian hub for SPAC listings.
Having said that, I still prefer to invest in a company with a track record of a few years. Investing in SPAC needs investors to make decisions primarily based on instincts rather than fundamentals; thus, I will refrain from investing in one for the time being.
All information is based on preliminary prospectors, which can change at any time. If you’re interested in either one of these SPACs, you may find their prospectus in Vertex Technology Acquisition Corporation Ltd and Pegasus Asia.
