This is an English adaptation of a FoodBud historical article originally published on September 3, 2021.
SPAC listings were accelerating sharply in 2021. Compared with 2019, the number of SPAC listings in 2020 rose 320%, while fundraising scale increased 510%, and the pace was still speeding up in 2021.
For foodservice and consumer-food operators, two China-linked examples stood out: Tim Hortons China and DayDayCook.
On August 16, 2021, Silver Crest (NASDAQ: SLCR) disclosed that Tim Hortons' China business would go public through a merger with the special purpose acquisition company.
Tim Hortons China was valued at US$1.688 billion, about RMB11 billion. The merger with Silver Crest was expected to close in the fourth quarter of 2021. The coffee chain officially entered China in early 2019. As of May 2021, it had 199 stores, expected to increase to 388 stores by year-end, with full-year revenue forecast at US$105 million.
On August 27, 2021, food-content and lifestyle brand DayDayCook announced that it had signed a merger agreement with U.S. SPAC Ace Global Business Acquisition Limited. The combined company was expected to list on Nasdaq under the new ticker DDC. DayDayCook's existing management team would continue to run the company after completion. The post-merger valuation was about US$377 million, or about HK$2.9 billion.
DayDayCook had expanded over the previous two years into RTH ready-to-heat foods, RTC ready-to-cook foods, and plant-based products. The company expected market penetration in RTH and RTC to deepen and projected rapid revenue growth in the following years. It planned to further develop new RTH and RTC product lines and focus on high-potential plant-based foods, with RTC and plant-based products expected to account for a larger share over time.
DayDayCook used its social-media and e-commerce platforms to share cooking and lifestyle videos, promote products, and build brand awareness among young food lovers. It had accumulated more than 3 billion video views and more than RMB10 million in global orders. According to its official website at the time, its platform had 80 million active users, 5 million paying users, and three offline food-and-lifestyle experience centers in mainland China.
Before the listing plan, DayDayCook had attracted investors including Alibaba Entrepreneurs Fund, K11, and AMTD Group, with cumulative financing of about US$80 million.
SPAC listing activity was also rising across Asia. In Southeast Asia, Grab and PropertyGuru had announced U.S. SPAC listing plans in 2021, with merger valuations of US$40 billion and US$1.78 billion respectively. Reports also said that stock exchanges in Hong Kong and Indonesia were considering allowing SPAC listings on their main boards.
SPAC stands for Special Purpose Acquisition Company. It is one legally recognized route to a U.S. public listing.
A SPAC is created for one purpose: to list first, then acquire a private company through a de-SPAC transaction. The private company becomes publicly listed through the merger, while the SPAC's sponsors and investors seek investment returns.
Before completing a de-SPAC transaction, a SPAC is a shell company with no operating business.
Most SPACs are incorporated in Delaware. If the target company may be outside the United States, a SPAC can also be incorporated offshore, such as in the Cayman Islands, for tax and transaction-structuring reasons.
A SPAC listing is broadly similar to a regular company IPO. It files with the U.S. Securities and Exchange Commission, completes SEC review, conducts a roadshow, and sells shares through a firm-commitment underwriting process.
SPAC listing expenses, including underwriter fees, are paid by the sponsors. Underwriter fees are typically 5.5% of the total capital raised: 2% paid at the SPAC IPO and the remaining 3.5% paid when the de-SPAC transaction closes.
Sponsor capital is usually about 2% of total IPO proceeds plus US$2 million. The 2% portion covers the underwriter fee due at listing, while the balance covers other SPAC expenses. At the time, average sponsor capital was about 3.2% of total SPAC IPO proceeds.
Because this sponsor capital mainly pays for listing and pre-merger costs, it may not be recovered if a merger is not completed. For that reason, it is often called at-risk capital.
Funds raised in the SPAC IPO are placed in a trust account. They are released when the de-SPAC transaction is completed and can be used for cash consideration in the merger, redemptions by SPAC shareholders, and working capital for the post-merger company.
SPACs generally must complete a merger within 12 to 24 months after listing. If not, they need shareholder approval to extend the deadline or must liquidate and return trust funds to shareholders.
A SPAC can be formed quickly, with simple steps and relatively low initial cost. A shell SPAC could be set up for US$25,000. Within three to four weeks, it could submit its listing application to the SEC. After SEC approval, the SPAC could complete listing within 15 days.
Because a SPAC is a newly formed shell company, it has no historical financial statements or operating assets to disclose, and fewer risk factors than an operating business. Its registration statement is often standardized, containing general language and biographies of directors and executives. SEC review comments are therefore usually fewer, shortening the review process.
A SPAC differs from a traditional reverse merger. In a SPAC transaction, the shell is intentionally created and funded first, then used to acquire a private company, making the target the listed business. In a traditional reverse merger, the shell company is usually an existing listed company with real operations but weak performance and potential delisting pressure; the private company acquires that listed shell without going through the SEC IPO approval process.
For sponsors, SPACs offered relatively low upfront investment and potentially high returns. Sponsor returns were often as high as nine to ten times invested capital. For private-equity sponsors, SPACs could also use their strengths in sourcing targets, executing deals, and supporting portfolio-company growth. SPACs could serve as a financing tool alongside traditional buyout funds, and the fundraising process could be simpler than raising a conventional fund.
For private companies seeking faster public-market access and less execution uncertainty, SPACs offered speed and greater deal certainty.
SPACs typically issue investment units. Market convention set the subscription price at US$10 per unit. Each unit usually includes one common share and a fraction of a warrant.
After a period following listing, such as 90 days, the common share and warrant in each unit can trade separately.
SPACs generally issue two classes of common stock: Class A and Class B or F. The shares included in units sold to the public are public shares, usually Class A common stock. Shares issued to SPAC sponsors are founder shares, usually Class B or F common stock.
These share classes usually vote together and have broadly similar rights. The main differences are that Class B or F shares often carry anti-dilution rights, and only Class B or F holders can appoint or remove SPAC directors before the de-SPAC transaction is completed.
Warrants allow holders to buy common shares during a specified period, giving SPAC shareholders potential upside. At the time, market practice was that each sponsor unit included one-half warrant, while each public unit included one-half or one-third warrant.
The warrant exercise price was usually 115% to 120% of the unit price. Based on a US$10 unit, the exercise price would be US$11.50 or US$12.
The exercise period generally began on the later of 30 days after the de-SPAC transaction closed or 12 months after the SPAC IPO, and ended five years after the de-SPAC transaction, though it could end earlier if shareholders redeemed or the SPAC liquidated. Under certain conditions, the SPAC could force redemption of warrants before the exercise period ended.
Warrants diluted PIPE investors and the original shareholders of the target company after the de-SPAC transaction.
Before a SPAC IPO, sponsors typically subscribed for founder shares at a very low price, usually US$25,000. For most SPACs, sponsor shares represented about 20% of the SPAC's total shares after listing.
Founder shares usually converted into public shares of the combined listed company at a 1:1 ratio when the de-SPAC transaction closed.
Sponsors usually waived redemption and liquidation rights on their shares and committed to vote in favor of the de-SPAC transaction, helping the merger receive the required shareholder approval.
Before listing, sponsors also bought sponsor warrants through a private placement, with the amount equal to about 3% of the SPAC IPO proceeds. This was the at-risk capital used to pay IPO underwriter fees and other SPAC costs.
A SPAC transaction suited companies that wanted greater listing certainty and speed, or wanted to benefit from an experienced management team assembled by the SPAC sponsor. More startups were choosing this route.
A traditional IPO, by contrast, determines per-share pricing only after the roadshow and near the end of the IPO process. It is better suited to companies confident in their listing certainty and valuation.
Advantages of a SPAC listing included:
Traditional IPOs suited larger and better-known companies. Their advantages included:
On September 2, 2021, Singapore Exchange announced new rules allowing SPACs to list on its mainboard, effective September 3, 2021.
SGX RegCo CEO Tan Boon Gin said the framework would give companies another financing path with greater certainty around pricing and execution, and that SGX hoped the SPAC route would bring high-quality target companies to market and give investors more choice.
Under the framework, companies listing SPACs on SGX had to meet conditions including:
SGX said it would work with the Securities Investors Association Singapore on education programs to improve retail-investor understanding of SPACs.
SGX had first considered introducing SPAC listings in 2010, but shelved the plan after public consultation. In March 2021, it launched a one-month consultation on a SPAC listing framework for its mainboard, proposing requirements including a minimum S$300 million market capitalization at IPO, an IPO price of S$10 per share, and completion of a business combination within three years after IPO.
The framework was introduced as SPAC activity was heating up globally. Compared with 2019, SPAC listing count and fundraising scale in 2020 increased 320% and 510% respectively, and the pace was continuing to accelerate in 2021.
Note: IPO, valuation, financing, store-count, revenue, and forward-looking figures are historical figures from the 2021 source article.