Southeast Asian superapp Grab is likely to set a world record by selling itself into a special purpose acquisition company, or SPAC, run by U.S. tech venture capital investors Altimeter Capital Management.
The deal will value Grab somewhere between US$35 billion and US$40 billion. That would make it the largest deal for a "blank check" SPAC to date.
I've gotta say, I think the SPAC craze has disaster written all over it. If you think the blowup of Archegos Capital has thrown the spotlight on the family offices that operate below the radar and with limited regulatory oversight, just wait for a SPAC or two to explode.
A SPAC typically has two years upon raising capital for it to invest the funds or return the money to investors. It doesn't need to provide any idea of the corporate target it might have in mind. So investors are saying "bye" to their money without any idea of where it's going to go. Why on earth would you do that?
It would be like turning your money over to your property broker and telling them to buy you a house that would suit you, sight unseen. Maybe it would be nice to have one in Asia? Or Silicon Valley? It could have a pool and a garden, but then again maybe not. You, Nice Broker, decide.
It might work. You might love the house. If you hate your new bison-and-ostrich ranch in North Dakota, well, you only have yourself to blame.
I guess the idea is that people really like their property broker, by which I mean the retired or high-profile money manager offering to take your money off your hands with a SPAC. SPACs were all the rage in 2020, raising a record US$82 billion, a pace that's being exceeded in 2021.
A backdoor listing was once the mark of a shady company, one that wanted to take in public money without subjecting itself to the scrutiny that comes with the normal initial public offering process, with a roadshow and a prospectus and plenty of details about finances and how the company works. From my part of the world, backdoor listings have been a popular way for small Chinese companies to break into U.S. capital markets, following which plenty of founding entrepreneurs have then simply taken the money and run.
Grab, which has been particularly successful in Singapore, Vietnam, Thailand and Indonesia, has taken in US$12.1 billion in outside money so far. Softbank Vision Fund, the world's largest tech-focused venture capital fund, is an early backer, as is Invesco (IVZ) and Mitsubishi UFJ (MUFG) .
The Wall Street Journal first reported the talks between Altimeter and Grab in mid-March, while the Financial Times reports here on Wednesday that the deal is imminent, possibly as early as this week.
Altimeter has raised US$1 billion in two New York-listed tech-focused SPACs, the US$550 million Altimeter Growth Corp. (AGC) and the imaginatively named Altimeter Growth Corp. 2 (AGCB) , which raised US$450 million. The Silicon Valley-based venture capital manager also runs a long-short hedge fund and has backed the digital property site Loft as well as videogame sensation Roblox.
Altimeter is participating in a Private Investment in Public Equity, or PIPE, investment in U.K. used-car site Cazoo, which is listing on the New York Stock Exchange via a US$7 billion SPAC deal under the ticker CZOO. Altimeter's prior investments also include Expedia (EXPE) , Zillow (ZG) , Facebook (FB) and Uber (UBER) .
Altimeter was founded in 2008 by CEO Brad Gerstner, who started out as a securities lawyer and even served as deputy Secretary of State for Indiana before taking the established "tech bro" path to Harvard Business School and Silicon Valley. Altimeter, which had total assets under management of US$16.3 billion as of the end of last year, specializes in investing in tech companies that are looking to go public. As a crossover investor, it says it's looking for a way to conduct a "Better, Faster Tech IPO."
The second Altimeter SPAC said it did not have a target in mind at the time of its initial public offering (IPO). It said it intends to pursue a company "in a secular growth area of the technology sector," although the fund reserves the right "to pursue an acquisition opportunity in any business or industry." Its 10-K offer document refers to it having done something "on October 23, 2021," which obviously hasn't happened yet, so not all the details are ironed out.
Grab will raise only US$2.5 billion through a PIPE deal by selling now-public shares to private investors at a discount. Altimeter will chip in US$1.2 billion of the PIPE financing, according to the Financial Times. Morgan Stanley (MS) and JPMorgan Chase (JPM) are advising Grab on the SPAC.
Taking its lead from the WeChat app created by Tencent Holdings TCEHY, which is now omnipresent in China, Grab and its Indonesian counterpart Gojek are striving to expand their positions as "superapps."
Grab had been looking at a conventional IPO path. It late last year said it was in a position to acquire Gojek or merge with it, but the talks didn't proceed as ride-share bookings plummeted during the pandemic. Both businesses are unprofitable and burning cash to build market share. Both companies laid off people in 2020.
These superapps spring from one commonly used and high-touch service: ride hailing for both Grab and Gojek. The app operator then adds additional services to make the app a "Swiss Army knife," serving many functions that make it almost indispensable for daily life.
Grab has expanded from discount taxi fares to food delivery, traffic alerts, digital payments, bill payment, e-wallets and travel planning, including hotel bookings. It expanded into the Philippines first, then Thailand and on into the rest of Southeast Asia. Through partnerships, it offers ride services in Japan and the Middle East.
Indian e-commerce site Flipkart is also thought to be looking at a SPAC sale, which would also be valued at around US$35 billion. It would make for a healthy profit for Walmart (WMT) , which bought a 77% stake in Flipkart in 2018 for around US$16 billion, an investment that valued the whole company at US$21 billion.
Last September, Flipkart had been looking at an initial public offering valued at around US$50 billion in either Singapore or New York. But that was before U.S. tech stocks started selling off in mid-February.