Grab has announced that it will go public through a merger with a blank cheque listed entity, Altimeter Growth Corp. If successful, Grab will become a publicly listed company on NASDAQ under the ticker “GRAB”. Valued at approximately US$39.6 billion, this will represent the largest SPAC merger deal in the world.
In case you missed a previous article, here’s a brief recap on what SPACs (a.k.a. black cheque companies) are: SPACs raise public capital through an Initial Public Offerings (IPO) with the aim of acquiring or merging with a private entity (such as Grab). Within two years (approximately), a SPAC merger (or acquisition) will have to occur before the funds are liquidated back to the shareholders.
Read Also: What Is Special Purpose Acquisition Company (SPAC) And How Is It Different From Conventional IPO?
The increased activity within the SPAC mergers space is on the back of the US’s SPAC boom that started in 2019. According to Refinitiv, there was a record number of 256 SPAC listings in the US in 2020, almost 3 times the number of deals in 2019. As of March 2020, the number of SPAC listings has eclipsed 2020’s numbers, with 264 SPAC listing.
Currently, there more than hundreds of SPACs looking to acquire companies within their allocated 2-years’ time frame. With a race against time, US SPACs have been shifting their sights to Southeast Asia to look for potential merger or acquisition deals.
Why Do Some Companies Like Grab Prefer Listing Through SPAC?
Apart from Grab, there has been coverage of similarly prominent regional start-ups looking to merge with US SPACs. These companies include One Championship, Propertyguru and Traveloka.
Despite other listing options such as conventional IPO and direct listing, there are a few reasons why companies like Grab may prefer going public via a SPAC listing.
#1 Higher Deal Certainty
In 2019, we witnessed one of the largest IPO pull outs in history when the WeWork debacle happened. With an IPO valuation of US$47 billion, when WeWork went about with the usual pre-IPO roadshows providing extensive financial disclosure to the public, investors were not convinced. Subsequently, the overall market scrutiny and eventual expose caused the IPO to fall through. It is currently also seeking to go public via a SPAC merger with a valuation of US$9 billion.
In comparison, a SPAC merger is not as exposed to the market and regulatory risks as it does not need to undergo as many pre-IPO activities. Regardless, a SPAC merger would still have to pass through regulatory requirements set out by the Securities and Exchange Commission (SEC), which is a hybrid of corporate merger and listing regulations (more on this below).
#2 Shorter Time Frame For Listing (And Potentially Cheaper)
Another pain point of conventional listing pathways is the length of the process. According to KPMG, a typical IPO process can take about 12 to 18 months while a SPAC merger can happen within 3 to 6 months.
With IPOs taking 3 to 4 times longer, it can result in significant opportunity cost to high growth companies as they have to divert resources and focus away from business growth.
Furthermore, IPOs can be relatively more expensive due to higher cost of marketing (more roadshows) and the 4% to 7% fees on issue price charged by underwriters. By going through the SPAC merger, Grab can save significant listing expenses.
#3 Benefits From Listing In The US And Working With SPAC Sponsors
In addition, the SPAC merger gives companies like Grab access to the US markets and investors. Along with the sheer number of SPACs looking for merger and acquisition opportunities, another advantage of listing in US in comparison to regional exchanges are potentially higher valuations and liquidity. With platform companies benefitting in revenue growth from the pandemic, capitalising on the current positive sentiments for growth would be opportune.
Besides, through the merger, Grab will be partnering with Altimeter Capital Management, which is an experienced Silicon Valley tech-based investment firm. Altimeter would not only provide their expertise, but they would also assist on the merger process.
Based on Grab’s investor slides, Altimeter Capital will commit US$750 million to the fundraising and an additional US$500 million as backstop for SPAC shareholders that wish to redeem cash instead of joining the merger. The support from Altimeter would further assist in solidifying the merger deal for Grab.
What Investors Need To Know About SPAC Merger Process
#1 SPAC Merger Company Will Have To Fulfil SEC Documents For Listing In A Tight Time Frame
Source: PWC
As shown above, currently Grab has passed through the necessary merger agreements. Even though the merger is confirmed, Grab listing requirements are still under scrutiny as they continue to file the necessary financial reports for SEC’s approval. This process usually takes up to three to five months.
#2 Expect Dilutions From Warrants Of Original SPAC Investors
Given as a sweetener for initial subscribers of SPACs, a typical unit of a SPAC includes a share and a proportion of warrant. A whole warrant gives the holder the right to redeem shared directly from the issuer at a fixed price. Based on Altimeter Growth SPAC, per SPAC unit, the subscriber will receive one share and one-fifth of a warrant.
When a merger is confirmed, the SPAC shares can be diluted by two sources, public warrant and founder (or “promote”) warrant. However, for Grab’s IPO, Altimeter has committed to lock up their founder shares for at least three years.
#3 Currently, SPACs Do Not Have The Best Post-Merger Track Record
While the boom of SPACs is relatively recent, there have been closed merger deals on the market that investors can track for historical performance.
According to Bain, of the 121 completed SPAC merger deals, more than 40% of them were trading below their $10 SPAC IPO price. SPAC post-merger deals from 2016 to 2019 underperformed significantly compared to their S&P counterparts. However, there are signs of SPAC deal quality improving over time. Post-merger deals closed in 2020 actually perform better than their S&P IPO counterparts. Still, individual performance of the merger deals fluctuates and there is a need to track for the long term to better measure SPACs post-merger performance.
Read Also: Complete Guide To Grab Subscription Plans
Investors would have plenty to look out for in the following months as there are still many similar companies in the region showing interest to enter the public markets through SPAC.
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