07 August 2014

Understanding "Special Purpose Acquisition Company" (SPAC). Is it Purely Speculative?

After almost 3 years since the listing of Malaysia's first special purpose acquisition company (SPAC) on Bursa Malaysia, many investors still don't know what's that and many investors skeptical about its existence. Let's us explore here...

What's SPAC ?

It's another product of Bursa Malaysia, which is very different from other trading companies or products on the stock exchange. Before investing into a company, what do we consider first? Company profits track record? Business model? Earnings growth projections? P/E ratio?... All of these info is UNAVAILABLE for SPACs during initial public offering (IPO).

In fact, a SPAC is floated without any business. It's up to the management to identify a suitable acquisition or merger (or more), and to secure shareholder approval to use IPO proceeds to pay for that deal. In Malaysia, a SPAC must complete at least a deal within 3 years after listing.

Without all those info, what could investors relying to? Obviously, the only visible reference was their management team. The success of a SPAC depends solely on the management team, which basically comprise of experience or expertise people to conclude a deal.

Then, this is very risky. Correct?
Undeniably, it's riskier than ordinary IPO investment. In order to safeguard investors interest and providing them some comfort, SC guidelines stated the following 2 key rules for SPAC:

  1. 90% of the IPO proceeds raised must be placed into a trust account, and
  2. If the SPAC fails to make a deal after the 3 years deadline, it will be liquidated and the trust money will be distributed to shareholders.

So, is it worth to invest in?
Yup. SPAC was very much like a speculative investing, without any fundamentals of a proper business in place. It solely depends on the management team to make it or break it. With the 3 year deadline, this puts SPAC in a dire needs to conclude a deal than the seller. This may adversely affecting the negotiation power of SPAC. Do you think that the deal negotiated in such manner could bring advantages to shareholder? Let's wait and see...

1 comment:

  1. Great info bro! Very rare talent in Malaysia. Me think you should be in BNM, working side by side with Zeti..


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