As of 3 September 2021, the Singapore Exchange (SGX) has become the first major bourse in Asia to allow special purpose acquisition companies (SPACs) listings. Their listing rules for SPACs are now up the Mainboard, and it is a critical move that the city-state hopes will suffice to raise funding from more firms amidst today’s stagnating initial public offering (IPO) climate.
With the introduction of this new listing framework, the SGX has considerably improved its reputation as one of the most progressive bourses in the region, garnering high expectations that it will add more vibrancy to the capital markets of Singapore.
Since SPAC mergers will likely become more frequent, here are the pros and cons that businesses should be aware of should they attract the attention of SPACs.
What is SPAC?
SPAC short for Special Purpose Acquisition Companies, are companies that offers no commercial services, and is created specifically to raise fund purely to acquire or merge another company.
Commonly known as “blank check companies”, SPACs attain funding from investors ranging from private equity funds to celebrities and general public. Once they begin acquisition, the SPACs have two years to completely acquire the targeted company, or the funding must be returned to the respective investors.
Why go through SPAC instead of IPO?
Going through SPAC saves a lot of time and money. Going through an Initial Public Offering (IPO) can be a long process involving complicated process and lots of negotiation with different members of the financial body. This long process, which may take anywhere from six months to more than a year, often deters many companies in their plans to be publicly listed.
SPAC on the other hand, provides more flexibility, allowing companies to be publicly listed within months. This is also due to the limited timeframe the SPAC has in making the acquisition. Besides that, there is also more flexibility between SPAC and targeted company to customise the details of the deals including financing, earnout, and stock, with both sides getting the best of both worlds. In addition, merging with a SPAC that has the backing of well-known sponsors or businessmen provides target company increased market presence and better management.
Requirements to be an SGX SPAC
Some of the requirements or admission criteria for SGX SPACs are:
- To be a SPAC, you need to have a minimum of S$150 million market asset.
- Public shareholders must make up a minimum of 25% of the SPAC’s issued shares.
- IPO price must be set at least S$5 per unit.
- Stringent suitability check including profile check of sponsor (eg. Track record, experience, and expertise), business plans and vision, and nature of management team, must be set in place to safeguard business combination and alignment of interests.
Valuation of SPAC merger
A SPAC merger has to go through a valuation for three different stages (Pre-merger, merger, and post-merger). During the pre-merger valuation, financial reporting is required from both SPACs and identified target companies to prepare for potential business merging and listing. In the merger stage, it is further required by SGX listing for the target company to go through additional valuation done by a professional independent valuer. The SPAC too need to get professional advice from a financial adviser on the business merging. Once both companies have merged successfully, the SPAC now becomes an operational company and will be subjected to listing and finance reporting. Such reports include purchase price allocation, stock compensation, and complex securities valuation.
SPAC mergers undoubtedly come with excellent benefits compared to a traditional IPO transaction, but also comes with several challenges that target companies must prepare themselves to navigate, alongside the usual risks and criteria involved in operating as a public company. Fortunately, Max Lewis can help you with your SPAC mergers, from financial advisory to business and assets valuation.
If you are looking for guidance and support for your company, then contact us at Max Lewis Pte Ltd. We also offer a range of other services that allow you to further enhance and expand your company’s business operations, including reviews of GST compliance, transfer pricing advisory, local and international tax planning, and business valuation services in Singapore. Contact us today to learn more about our highly trusted services if you wish to know more.