The market frenzy around SPACs may have subsided somewhat, their effects on tech companies are far from over. In fact, their focus has simply shifted away from the US to other regions.
Where? Apparently, Southeast Asia.
I’ve been bullish on Southeast Asia as an emerging region of growth and technology innovation for quite some time. I’ve written about the tech ecosystem there in the past and have worked and lived there as far back as 2009.
Still, the current attention that SPACs are paying to Southeast Asia deserves a deeper look. There are many quality analyses out there, if you are unfamiliar with SPACs, so I won’t provide a “SPAC 101” here. One source I like to point to is a16z’s blog post on the relative tradeoffs between SPACs and the other two methods for a company to go public -- IPO and Direct Listing. Here’s a helpful shorthand from that blog post:
"If you need money, an IPO, for all its flaws, makes the most sense and is probably the best option; if you don’t, a Direct Listing may be preferable; if you need money, speed, and certainty, a SPAC may be best."
The more I think about the strengths and weaknesses of SPACs, the more I believe they are the perfect vehicle for tech giants operating in emerging markets, like Southeast Asia, to attract global capital and exposure.
“Enlightened” Sponsor, Handpicked Audience
Every time a company raises money, it’s a storytelling exercise. If you are raising from the private market, you need to tell stories to VCs, angel investors, and (increasingly) crossover funds. If you are raising from the public market, you need to tell stories to large institutional investors, hedge funds, and retail investors from the public. The audience may change, but the necessity of a good story stays the same.
The basic anatomy of any good story is context plus relatability told through the voice of a persuasive, credible storyteller. The unique feature of a SPAC is its sponsor, or its chief storyteller, who is allowed to tell the SPAC’s target company’s “past” story (historical financial statements) and “future” story (future expectations). In a traditional IPO or Direct Listing, you can only talk about the past.
The toughest hurdle for any emerging market tech company is storytelling to a foreign audience, oftentimes an American audience, who controls the capital it wants. In the US, the overall understanding and appreciation for emerging markets, even among the supposedly sophisticated investor class, is sadly low. As for Southeast Asia in particular, even at the highest level of government -- the Secretary of State level -- the region still gets overlooked, ignored, and unnecessarily snubbed.
By definition of being an emerging market, the past was not that great -- no track record of other iconic companies created, no analogous benchmarks, just a history of poverty, conflicts, and corruption. And if you can’t talk about a bright future -- the sole reason why emerging markets are attractive to begin with -- your story won’t go very far. Merging with a SPAC lets you talk about that bright future, at least to some extent.
There’s another advantage to a SPAC that’s more subtle -- an “enlightened” Sponsor who can handpick a receptive audience.
Let’s assume there’s a SPAC that decides to merge with a Southeast Asian tech company, and the SPAC’s Sponsor is knowledgeable about the region’s potential (one would hope so). Because the SPAC, as a blank check publicly-listed company, already has money in the bank, that’s one audience the target company does not need to sell a story to anymore -- the Sponsor already took care of that. (Technically, the investors in a SPAC can vote against a target merger they don’t like, but that usually does not happen because it defeats the purpose of investing in a SPAC in the first place.)
This “enlightened” Sponsor can then select a small group of investors with longstanding relationships, who already have knowledge or experience in the emerging market, to raise more funds for the target company. It’s a receptive audience that needs little context-building, and the target company’s future prospects will resonate more easily. This selective storytelling stands in contrast to the usual IPO process -- a two-week roadshow that essentially amounts to randomized speed dating, where the audience’s level of knowledge about your region is a crapshoot at best, thus so is their investment and commitment level.
Let’s look at a real example to illustrate these advantages in more concrete ways: Grab’s SPAC merger with Altimeter Capital.
Grab + Altimeter
The Grab-Altimeter marriage is the largest SPAC deal to date, which values Grab at almost $40 billion dollars. (Disclosure: I own shares in the Altimeter SPAC: $AGC.) Besides SEA Group’s listing on the NYSE, there is no precedence of a Southeast Asian tech company going public in the US. As a stock, SEA Group ($SE) has been doing well in the last few years. When Grab was contemplating a traditional IPO in January 2021 and rumored to have picked Morgan Stanely and JPMorgan as its underwriters, surely SEA Group’s success was part of Grab’s story.
In comes Altimeter’s SPAC led by Brad Gerstner -- the perfect Sponsor and storyteller for Grab. Let’s break this down.
As one of the most successful Internet company investors in the field, Gerstner has had early exposure to the SuperApp phenomenon in Asia. He began exploring the Chinese tech ecosystem in the early 2000s. He has invested in Pinduoduo. He invested in ByteDance early, long before the company became a household name in tech, thus getting an early peek into the post-search, algorithm-driven trend epitomized by Jinri Toutiao, Douyin, and TikTok.
With deep exposure to the dynamics of tech in Asia (at least for an American investor), it’s not surprising that Gerstner grasps the opportunity in front of Grab -- the leading SuperApp of Southeast Asia. He is a knowledgeable, credible, and “enlightened” Sponsor. What he also brought to the table to seal this deal is a “handpicked audience”, a group of funds that already has contextual knowledge of Southeast Asia’s growth potential. Some of these funds are:
- Janus Henderson Investors (dual-listed on the NYSE and Australian Securities Exchange, thus exposed to the southern parts of the APAC region.)
- Permodalan Nasional Berhad (one of the largest fund managers in Malaysia; Grab originally started in Malaysia)
- Mubadala Investment Company (the UAE sovereign wealth fund with a long history of investments in Malaysia -- some good, some not so good, see the book, “Billion Dollar Whale”)
With the perfect storyteller in front of a receptive audience, the “SPAC way” all of a sudden looks like the better path to go public. In the end, Grab raised $4 billion dollars, much more than the $2 billion it was hoping to raise via an IPO, and became the catalyst of this recent SPAC-mania in Southeast Asia.
But will this newfound attention yield more deals? And more importantly, will it inject the capital, exposure, and global recognition needed to take the Southeast Asian tech ecosystem to the next level?
SPAC-ing Emerging Markets
When I last wrote about SPACs in October 2020, it was in the context of possible delisting of Chinese companies from Wall Street. Back then, I made the following observation:
"The SPAC hype is mostly an American phenomenon, and there are plenty of private companies in the US to target. It will be a long time, if ever, before American SPACs look for foreign companies to take public."
Clearly, I was wrong. I was wrong in thinking there are more than enough quality private US companies to keep the SPACs busy. I was also wrong in thinking that these SPACs won’t be willing to venture beyond America into emerging markets to look for deals.
Capital flow is as global as ever; SPACs are just another stream of that flow. Many of these SPACs were formed last year and have the customary 1.5 to 2-year window to find a target company to merge with, so the clock is ticking.
There is no lack of capital nor lack of urgency. There is also no lack of quality companies to target, as the first generation of tech startups come of age in Southeast Asia. Two Indonesian unicorns, Gojek and Tokopedia, just merged to become GoTo Group -- a $18 billion decacorn. Other unicorns, like Bukalapak (e-commerce), Traveloka (travel), and PropertyGuru (real estate), could all make attractive targets.
The limiting factor for more SPAC-ing in Southeast Asia, however, is a lack of enlightened Sponsors -- a lack of Brad Gerstner’s -- to be the right voice to tell the right story to the right audience.
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SPAC还有一个更微妙的优势——一个 "开明的" 保荐人，可以精心挑选一群已经想听你的故事的听众。
然后，这位 "开明的" 保荐人可以挑选一小群有长期合作关系的投资者，为目标公司筹集更多资金。这是一群已经有新兴市场的知识或经验、接受力更强的受众，不需要花太多时间打基础，科普基本知识，他们更容易被目标公司的未来前景引起共鸣。这种有选择性的讲故事方式与通常的IPO过程形成了鲜明的对比——IPO为期两周的路演，基本上相当于随机的快速约会，听众对公司的地域了解程度高低不等，因此他们的投资和承诺程度也是如此。
Grab + Altimeter
Grab与Altimeter的联姻是迄今为止最大的SPAC交易，对Grab的估值达到近400亿美元（声明: 我持有一些Altimeter SPAC的股票: $AGC）。除了SEA集团在纽交所的上市，还没有东南亚科技公司在美国上市的先例。作为一只股票，SEA集团（$SE）在过去几年中表现良好。当Grab考虑在2021年1月启动传统IPO上市，并传言选择摩根斯坦利和摩根大通作为其underwriters时，SEA集团的成功一定是Grab自己故事的一部分。
就在那时，由Brad Gerstner领导的Altimeter Capital的SPAC成为了Grab上市的选择之一。Gerstner可以说是最适合讲Grab故事的保荐人，让我们来看看这是为什么。
- Janus Henderson Investors（在纽约证券交易所和澳大利亚证券交易所双重上市，也因此接触到了亚太的南部地区。）
- Permodalan Nasional Berhad（马来西亚最大的基金之一；Grab最初在马来西亚起步）