A special purpose acquisition company (SPAC) is an alternative way for companies to go public without an initial public offering (IPO). It allows private companies to raise capital more quickly and efficiently than through a traditional IPO and retain more control over their businesses. For example, in March 2020, Singapore-based ride hailing giant Grab announced that it would list its shares on the Nasdaq via a SPAC, making it the first Southeast Asian company to do so.
A SPAC listing holds certain advantages for Grab’s shareholders and executives. It offers them greater liquidity from the beginning and provides access to much larger sums of capital than through a traditional IPO. In addition, those involved don’t need to wait for the lengthy process that accompanies registering for an IPO. A SPAC accelerates the process by merging with a publicly traded shell company and allows companies like Grab access to investors who focus on public markets and may be more willing to invest in emerging technology in this area. Furthermore, merger documents such as the shareholder rights plan are usually less detailed than an IPO registration statement, allowing executives greater discretion over their business operations and granting them control throughout the process.
In conclusion, a SPAC listing has many potential benefits for private companies looking to go public quickly and efficiently while retaining some degree of control over their business operations. Companies like Grab can gain greater liquidity from day one and appeal to investors who may be open to investing in emerging technologies such as ride sharing apps. Ultimately, this accelerates growth opportunities for shareholders and executives by combining access to larger amounts of capital with faster timelines for going public.
Overview of SPACs
Special purpose acquisition companies, or SPACs, have become increasingly popular recently. Essentially, these companies are formed to raise capital quickly and acquire an existing operating business.
SPACs are an attractive option for companies looking for a fast-track public listing process compared to the traditional IPO route.
Let us take a closer look at how Southeast Asia’s Grab could benefit from a SPAC listing.
What is a SPAC?
A Special Purpose Acquisition Company (SPAC) is a public company created to raise funds in anticipation of a merger or acquisition of a non-public company. These companies are formed as publicly traded “shell” companies, meaning they have no commercial operations, assets or liabilities apart from those associated with raising capital and searching for an appropriate merger target. SPACs enable private companies to benefit from the increased visibility and liquidity created by going public, while avoiding some of the costs associated with a traditional IPO.
The SPAC structure can offer significant advantages for venture-backed businesses seeking to go public without having to experience the arduous process typically required for an initial public offering (IPO). Some of these benefits include: Increased capital raising efficiency and cost savings; reduced timeline for becoming publicly traded; enhanced visibility and potential interest from investment banks; potentially broader investor base; no post-IPO lockup on existing shares. For example, in February 2021, Grab announced that it plans to list on the Nasdaq through a SPAC deal with Altimeter Growth Corp. This deal will give Grab access to nearly $4 billion in cash Altimeter has raised from investors.
Overall, SPAC listings can be beneficial because they provide greater flexibility while giving upstart businesses access to additional capital previously only available through traditional Initial Public Offerings (IPOs). By taking advantage of this alternative listing option, companies like Grab have been able to more efficiently raise capital while benefiting from increased visibility and liquidity.
How do SPACs work?
Special purpose acquisition companies (SPACs) are shell companies, or blank check companies, that exist to take a private company public by purchasing it and becoming its parent company. These are also sometimes called investment corporations or “blank check companies.” They are formed to raise public capital for the specific use of making an acquisition, either a merger or a buyout. SPACs differ from traditional Initial Public Offerings (IPOs) where the issuer and target are already public once the offer is made.
SPACs offer an alternative and more direct route for businesses to gain access to rapid capital growth in the stock market while avoiding the tedious IPO process, allowing them to receive funds quickly and easily. For target companies who prefer confidentiality and want to remain anonymous until they complete their transaction, SPACs can be an attractive option because they keep the details of their contemplated transaction away from traditional disclosure channels until completion. Additionally, these listings provide more flexible terms than traditional IPOs because there are no pre-agreed upon prices and shareholders have 30 – 45 days post closing of the deal to vote on the deal’s merits.
With a SPAC listing Grab will receive benefits such as bypassing complications from existing regulations associated with IPOs; along with providing time saving advantages when compared with a conventional IPO process; reducing investor risk associated with early-stage investments that appear in IPOs; furthermore, enabling Grab’s management team full control through independent advisor selection rights normally not afforded to firms entering via one single investor channel such as Private Equity firm or Venture Capitalist due diligence requirements which accompany those investors.
Advantages of SPACs
Special Purpose Acquisition Companies (SPACs) are blank check companies, typically formed by sponsors to raise funds through an initial public offering (IPO) of securities to use the proceeds to acquire established companies, to take them public via a reverse merger. SPACs make public market investments more accessible, offering companies a simpler and faster path to the public markets. By doing so, SPACs allow established businesses to access capital while avoiding many of the costs associated with traditional underwritten IPOs.
For late-stage private businesses seeking additional growth capital or a path to becoming publicly traded, listing on a SPAC can have several advantages:
- Accessing liquidity sooner than other IPO routes by reducing lead time from doldrums to market debut
- Improving investor relations for greater visibility and engagement
- Offering flexibility for contingent agreements
- Unlocking certain tax benefits over traditional IPOs
- Obtaining real priced financing for expansion
- Enhancing valuations through meaningful price discovery process
- The opportunity for investors and sponsors alike spurred by massive capital inflows into SPACs
This article overviews how Grab may benefit from listing on a SPAC.
Southeast Asia’s Grab in talks for U.S. listing via $40 bln SPAC deal
Grab, Southeast Asia’s leading online-to-offline (O2O) company, is in talks to go public through a $40 billion special purpose acquisition company (SPAC) deal. This could potentially be the biggest-ever listing for a Southeast Asian firm, and would benefit Grab in several ways.
This article will explore the various benefits that Grab would enjoy from a SPAC listing.
Access to U.S. capital markets
SPACs allow firms to access U.S. capital markets without the time and cost involved in an initial public offering (IPO). SPACs provide businesses with a relatively simple and fast path to going public. For Grab, a SPAC listing would give them access to U.S. capital markets and a platform for future growth.
A SPAC listing offers various advantages for Grab compared to an IPO, including:
- An expedited timeline: A traditional IPO typically takes 10-18 months from the initial filing date to go public, while a SPAC listing can occur within 6-9 months.
- Cost savings: Since the cost of going public is spent in private markets, companies do not have to spend as much money on legal fees and marketing associated with IPOs.
- A more flexible structure: Companies can choose their share structure with terms that benefit them rather than having their ownership divided among many outside investors as it would be by an IPO underwriter syndicate.
- Reduced regulatory scrutiny: Compared to IPOs, SPAC offerings are typically not subject to the same level of scrutiny by regulators due to their shorter timeline and less detailed disclosure requirements.
The potential of raising to $2 billion through a merger with a special purpose acquisition company (SPAC) could provide Grab with greater financial flexibility, helping them expand into new markets or develop new products and services that could improve or disrupt existing industries or business models within Southeast Asia beyond ride-hailing services alone. Additionally, it would allow outside investors who don’t already have prior knowledge of the company’s operations and finances access insights through more recent financial disclosures around its plans over the coming years while allowing existing investors who believe in different aspects of its overall goal more liquidity in their holdings should they wish so too early exit from some or part of their investment.
Increased visibility
A Special Purpose Acquisition Company (SPAC) listing offers tremendous potential benefits to a company such as Grab. Grab can drastically increase its visibility and market focus by going public via a SPAC listing. This helps the company signal to potential investors that it is serious about its plans and creates an air of legitimacy and trust.
Moreover, the SPAC listing process allows Grab to tailor the listings on its terms, avoiding the usual lengthy process of taking a company public from scratch. Also, with more visibility comes increased investor confidence, as more investors will be willing to put their money into Grab, knowing that it is a legitimate business with big ambitions for success.
In addition, a SPAC listing allows Grab to raise capital quickly and efficiently when the company needs it the most. This can be especially useful when there is an urgent need for investment or if there are strategic acquisitions to be made by Grab to expand their business operations. Furthermore, by offering investors relatively liquid assets such as shares in an already-listed SPAC entity, Grab could attract larger pools of investments than they could attract through traditional financing methods.
Reduced time and cost of listing
The main benefit of a SPAC listing over the traditional initial public offering (IPO) route is the shorter timeline and lower cost. A typical IPO process can take up to 18 months and often comes with prohibitive fees. However, with a SPAC merger, the IPO process is cut down to just 2-3 months, reducing both time and cost. Additionally, since the SPACs have already gone through necessary regulatory approval processes to become public, some of these costs may be eliminated from the process entirely. This can be attractive for companies like Grab on tight timelines when accessing capital markets.
Furthermore, going public via a SPAC merger allows for more control over pricing terms than an IPO does. In a traditional IPO, underwriters manage pricing and leave room for profits for themselves, leading to higher costs for companies compared to a SPAC merger. Lastly, with a simplified regulatory approval process and without the need for underwriters to manage pricing and issue shares on behalf of the company, these savings can also be passed on to investors in the form of discounted stocks at launch.