Earlier this month, the India-headquartered car-sharing company zoomcar The US stock exchange moved closer to listing its shares on the Nasdaq. The less common route it is taking is to merge itself into a listed company that had no underlying business but had explicitly raised funds to facilitate such an arrangement. Such a listed company is known as a Special Purpose Acquisition Company (SPAC), which is also a ‘blank-check company’. If Zoomcar seals this listing, it will prefer Yatra Online and Renew Power to take the SPAC route.
In the US, where all the SPAC action is, this route was a rage when the stock market was rising, but not now. Indian exchanges do not yet allow SPAC, however. capital market regulator considering them. But Indian investors can invest in global SPAC at two points: when SPAC makes an IPO and after a business is merged into it. In the first instance, investors are essentially backing the SPAC promoter on their ability to attract a good business. In the second example, they are buying into that business.
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SPAC is a high-risk investment, which is even more risky than an IPO of Internet businesses. Traditional IPO routes, such as Zomato and Paytm, set the filter for businesses and require them to make more disclosures. The SPAC route is, in spirit, a private transaction between two parties – and, thus, higher on the risk scale. Yatra stock is down 77% from its December 2016 price and Renew Power 47% less than the January 2021 price.
risky business
The SPAC route has been used by businesses that had reached maturity levels and by their private investors seeking exits, such as Southeast Asian supercap Grab and American biotech company Gingko Bioworks. But in 2020 and 2021, when capital was abundant and the stock market was galloping, more businesses demanded SPAC and the quality fell. Smaller companies that have not yet demonstrated profitability, let alone sustained profitability, have also taken the SPAC route.
The subsequent market correction hurt the SPAC. The risks inherent in SPAC are captured by three indices tracked by PitchBook, which curates data from private companies. These three indices track the performance of three sets of companies that move from private to public: those backed by venture capital (usually, they invest early), those backed by private equity (typically, Those come later) and companies that list through one. SPAC. In all four specified timeframes, the SPAC set has had the worst performance.
indian scene
Earlier, major Indian startups like Grofers, Byju’s and Flipkart have reportedly considered SPAC route To list in the US. Similarly, SPAC has also attracted massive interest from Indian investors. For example, in June 2021, a SPAC called Global Consumer Acquisition Corp, floated by private equity professional Rohan Azila and Manipal Group chairman Gautam Pai, raised $170 million through an IPO. It recently filed papers with the US regulator regarding the two acquisitions for meeting next month.
After all, for retail investors subscribing to a SPAC, the return depends on how that business absorbs rent. Given that SPACs are largely engaging with Internet startups, it is instructive to see how the four major Indian Internet businesses that have taken the traditional IPO route have fared in the past 15 months. These four outperform the BSE Sensex, and three of them trade below their issue prices. If anything, the downside to Internet businesses through SPAC is only more.
SPAC Slowdown
As the first chart shows, about $245 billion was raised through IPOs by 861 SPACs in 2020 and 2021. Much of this is yet to be put in place, and time is running out. SPACs, typically, state that they will acquire a business within 18-24 months, or return the money to investors. Due to poor market sentiment, it is taking longer to close the deals. Only 49 SPAC deals were closed in the first half of 2022, compared to 128 in the first half of 2021.
According to SPAC data provider SPACinsider, 530 are looking to acquire SPAC. In a September market review, SPAC data platform Boardroom Alpha said: “While liquidations are already on the rise, today’s levels certainly won’t hold a candle to the coming 2023, with ~270+ SPACs ending up within the first.” are ready for. 3 months of the year.” It also underscores why SPAC investing is a high-risk proposition.
www.howindialives.com There is a database and search engine for public data.
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