Highlights

1. The SPAC wave has come faster to SEA than it has developed in the US, bringing a “golden age” of IPOs in the region, but is it a full wave of adoption or a side effect of maturing SPACs on Wall Street looking for prime hunting grounds for targets?
2. SPACs have certainly attracted local unicorns and decacorns in the region, but ultimately these companies are likely to merge with SPAC companies on Wall Street. Will this wave engage more companies and actually speed up the runway for venture-backed companies in the region to go public? 
3. Exchanges are aiming to compete with US exchanges on SPACs and use this route to attract more tech companies, but is the balance of supply (targets/companies) and demand (public market investors) enough to attract valuable listings? 

SPACs are nothing new, and yet their entry into the mainstream as a route for companies — tech companies especially — to the public markets in the US created waves that reached Southeast Asia last year. SPACs have traditionally been seen unfavorably due to the underlying mechanism of using blank check companies (which had gained a level of notoriety around the time SPACs were introduced), and the idea of investors potentially being exposed to the risk of fraudulent targets. 

But shifts in regulation combined with a massive influx of potential targets (i.e. highly valued venture-backed companies) and retail investors have opened doors for SPACs. In the US, regulation changes in NYSE in 2017 slowly laid the groundwork for an avalanche of SPACs in 2020. And in Southeast Asian countries, especially Indonesia and Singapore, that wave has come even faster (a phenomenon we notice time and time again). 

There’s the generation of companies that reached unicorn-hood in the 2010s — mostly from Indonesia — now headed to the public markets, with the likes of Grab and Traveloka announcing their listings valuing these companies at US$34 billion and US$5 billion respectively. There’s also the likelihood of Gojek and Tokopedia going a similar route post-merger in the coming months. And with local exchanges in the region like SGX and IDX opening up to SPACs as well alongside the slew of SPACs listing in the US targeting investments in Southeast Asia, it’s clear that the wave of SPACs has just begun in Southeast Asia. 

How the SPAC wave in Southeast Asia began

Getting caught up in the new narrative for venture-backed companies 

In 2019, many articles were commenting on how many venture-backed companies were staying private longer amidst mega-rounds. That narrative has flipped with SPACs in the mainstream — now the opportunities for venture-backed companies to go public earlier have become more accessible. But while many of the SPAC’s listed over the past year are maturing and more incentivized to find targets — and Southeast Asia presents prime hunting grounds in that regard — venture-backed companies (and even investors) still have to be cautious about whether getting caught up in this new narrative is right for the company. There are certainly pros and cons — the cons are that the company may not get the publicity or the roadshow marketing effect that you get in a traditional IPO. But the good thing is that instead of doing 400 meetings, 30 meetings will suffice to generate enough investor interest. For investors, the continuity of this SPAC craze is largely due to greater confidence in the performance of investment targets, but it is not immune to sloppy results either. So we can expect that SPACs hunting targets especially in the untested waters of Southeast Asia will also be exercising a certain level of caution that may decrease over time if the success rate increases in the region. 

“While many of the SPAC’s listed over the past year are maturing and more incentivized to find targets — and Southeast Asia presents prime hunting grounds in that regard — venture-backed companies (and even investors) still have to be cautious about whether getting caught up in this new narrative is right for the company.”

Public markets still a reality that founders have to face

SPACs are in a way platforms bearing risk and costs usually borne by investors and the companies when these parties connect in the public markets. And so things may seem more secure and convenient, especially on the part of the companies, founders and executives still have to be aware of the fact that after going public, the company will still have to meet growth expectations at a whole new level of scrutiny and with more severe consequences. For companies that have not yet reached or experienced a certain form of stability (e.g. too big to fail, or much better, a trajectory that is profitable and scalable), being unable to meet the expectations of the public markets could result in trouble not just for the company but the blank-check company they merged with. That said, for the company that is prepared, SPACs are a worthy option to consider.

“…after going public, the company will still have to meet growth expectations at a whole new level of scrutiny…”

When reality hits you

The tough road to putting SEA exchanges on the SPAC map

Given that SPACs are relatively new to Southeast Asia, and have yet to be proven effective especially in the technology sector, where most of the gains are expected to be made. Even then, exchanges around the region like IDX are already competing to host regional champions. The conditions of many public markets largely decoupling from the economy along with massive government spending due to the pandemic also put exchanges in a ripe position to join the renewed SPAC bandwagon that got its wheels in the US. It reduces the risk for both companies looking to list and also the risk for investors. 

And one of the things we mention when talking about Southeast Asia’s tech ecosystem is that it’s not easy (or advisable) to simply clone models from abroad for the region’s markets. The same rule applies in reverse for these SPAC frameworks, and potentially even any projections with how SPACs will be received in markets in the region. While the ecosystem hopes that the trend from the US will spill over into the region, it does not automatically follow. 

At the same time, there are still common factors at play when it comes to putting SEA exchanges on the SPAC map. These exchanges are platforms, and like any platform, need to be able to manage both ends of the street. While exchanges opening the doors for SPACs lubricates the path for supply (i.e. tech companies to list), demand (i.e. PIPE depth, investors) also needs to be engaged and active enough to support SPACs. Expectations for investors have to be met so the risk of fraudulent targets are minimized, but still accessible to the pool of companies looking to list. 

There’s also the possibility that local exchanges like SGX are not just settling for SPACs to acquire targets from the region, but perhaps beyond Southeast Asia as well, making a bet on just how greatly investor interest into Southeast Asia will translate into listings. At the end of the day, local exchanges still face tough competition from NYSE, at least over attracting companies of a certain valuation range, and there’s still the question of whether the region’s consistent VC performance will translate into the same enthusiasm in these public markets. 

“While exchanges opening the doors for SPACs lubricates the path for supply (i.e. tech companies to list), demand (i.e. PIPE depth, investors) also needs to be engaged and active enough to support SPACs.”

It’s a tough act for exchanges opening up to SPACs

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It is clear that SPACs are making waves, but whether these will extend to more companies beyond the obvious suspects — who are more likely to list in the US with the valuation that they have — and whether local exchanges can support a greater wave of SPACs and SPAC targets from the region remains to be seen. In that case, Southeast Asia’s SPAC wave will still be tied to Wall Street until there is more demand and supply that local exchanges and investors can engage with. What SPACs bring to the table is a new narrative option for the venture-backed company, but it is ultimately up to these companies and what they envision for their path to exit that matters. 

Doesn’t hurt to dream