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Thursday, June 17, 2021

Khaleej Times - SPACs seek solid credentials for business combinations

By Century Financial in Century in News

Khaleej Times - SPACs seek solid credentials...

Vijay Valecha , Special to Khaleej Times June 17, 2021

Special Purpose Acquisition Companies (SPACs) are trending and investors are eyeing opportunities in the UAE. The nation has led by example in the GCC region by providing a robust platform for local or expat founders and entrepreneurs to build formidable high growth, and world-class businesses that are scalable internationally, said Saurabh Gupta, co-founder and board member, Vistas Media Acquisition Company.

Vistas Media Capital has set up a $150 plus million multi-strategy investment fund, leveraging its expertise across SPACs and content specialty financing within the Abu Dhabi Global Market (ADGM) to invest across the entire ecosystem of SPACs and pre-IPO financing for companies across key focus sectors in Mena and across the globe. The company will also offer structured finance in the content space across films, web series, music in India and Mena region.

“The businesses, incubated and backed by the credible and professional venture or private equity funds have ensured that such entities can expand and compete globally. SPACs seek such credentials for business combinations. Our landmark merger announcement with Anghami validates this belief and will certainly set an example for other SPACs to seriously consider the UAE region for potential targets. We are expanding our presence in UAE at the parent company level to get closer to entrepreneurs and exciting businesses and would be open to other potential Mena-based De-SPAC opportunities in the future,” added Gupta.

VMC has always held a strong belief in the growth potential of the Mena region and even before engaging in discussions for a SPAC merger with Anghami, set up Vistas International DMCC in Dubai which is headed by Sandeep Mishra, a veteran banker, and investment manager. The purpose of setting up the DMCC entity was to assess the full market potential for expanding VMC’s businesses and reach in the Mena region with UAE as the hub.

Similarly, Checkout.com has been operating in Mena for the past decade, and in that time, they have powered the payments for many of the region’s largest and fastest-growing technology businesses.

“We’ve seen the flow of capital to be a crucial component of accelerating the growth and maturity of a technology ecosystem. We believe this optionality of capital presents the best options for entrepreneurial startups. This was part of the thesis for our record-breaking lead investment of $110 million in Tamara, Saudi’s leading ‘Buy Now Pay Later’ firm. It’s also a factor we’ve seen repeated globally in Silicon Valley, London, China, and Singapore. To date, the region has seen some large exits through acquisition, IPOs, and the thriving venture capital scene,” said Mohammed Ali Yusuf, MENAP regional manager at Checkout.com.

Companies in the UAE are seeking fast-track listings abroad through mergers with SPACs, posing a challenge to local markets which are struggling to revive a vanishing IPO market. Blank check firms are viewed as the last resort for small companies to raise capital, to avoid the cumbersome process of an IPO. Theories suggest that the pandemic made it impossible to parade roadshows for IPOs. Thus, SPACs originated to be a more virtual and trouble-free call. Such lightly regulated vehicles are currently not permitted on UAE bourses, however, companies exiting the country to seek out alternative venues have put local markets under pressure to change regulations to cash in on the trend.”

Abu Dhabi’s Brooge Petroleum and Gas Investment Co (BPGIC), which operates an oil storage and service business, listed in 2019 on Nasdaq after a merger with a SPAC to establish a global presence; followed by the Abu Dhabi-headquartered Anghami, the Middle East’s rival to Spotify, recently announced it was merging with a SPAC.

Vijay Valecha , chief investment officer, Century Financial, said: “Companies are avoiding domestic listings due to the ease of listing through a shell company on more liquid exchanges. It is a wake-up call for local markets as the consequences can be ghostly if the trend continues. However, to filter out only genuine shell companies, the regulatory entities in the UK and US are laying the roadwork for relatively stricter rules for SPAC listings because the SPAC space is presently overcrowded.”

Valecha explains that Financial Conduct Authority has introduced additional rules for SPAC companies to make the entire concept more transparent and flexible from an investor perspective. Previously, a SPAC listing was suspended at the point when it identified an acquisition target. But the UK authorities are considering revaluating the suspension to protect shareholder interests and indirectly regulate the shell sector. To enjoy the relaxation of suspension, the company must comply with a few disclosures and features. Moreover, in the US, the Securities and Exchange Commission has reiterated that companies should be classifying warrants on their balance sheet as a liability rather than equity; thus, in the event of a qualifying cash tender offer (which could be outside the control of the entity), all warrant holders would be entitled to cash. This accounting switch will push firms to recalculate valuations for every quarter and may also cause a hitch in the outrage of SPACs.

“With these regulations in place, going forward there might be lesser opportunities than before for UAE firms to go public overseas, providing the UAE regulatory sector time leeway to consult market participants about inviting SPACs to list at ADX and DFM,” concluded Valecha.

Khaleej Times