SPAC is also known as “The Blank Check Company”. After SPAC launches and shares trades in the stock exchange, the raised capital will be safely deposited into a third-party custodian. The money, which will earn interest, will be locked for 2 years maximum.
As soon as the IPO is completed, the Management team starts searching for a private company to acquire and negotiating with responsible people in the targeting company. After reaching an acquisition agreement with the target, the Management team has to propose their plan to the shareholders and start voting to get shareholders’ consensus. The acquisition process can be kicked off and money can be withdrawn from the custodian account for settlement when the majority shareholders support the deal. Shareholders, who do not agree to the acquisition, can redeem their shares and get their money back from the custodian.
When the acquisition is completed, SPAC and the acquired company will merge into one company. The stock exchange will assign a new industrial classification and new stock code to the merged company, meaning DE-SPAC. In 2019, Social Capital’s IPOA SPAC acquired Virgin Galactic, the SPAC ticker ‘IPOA’ was replaced by ‘SPCE’ immediately.
However, if the Management team is not able to complete an acquisition within 2 years, the SPAC will be dissolved and the capital less IPO fee will be refunded to all investors.
According to Nasdaq and SpacAlpha, US-listed SPACs accounted for 79% of all IPO in 2021, 53% in 2020, 23% in 2019 and only 3% in 2013. U$77 billion capital raised via SPAC in the U.S. In 2020, which was almost 6 times the amount in the previous year.
Why are SPACs doing better than IPOs?
Traditional IPO requires heavy preparation works and many underwriters. Companies need to pay a large amount of money to those financial institutions and lawyers as the administration fees. However, most investors become cautious in 2020 when businesses are shut down under the pandemic environment. Many IPOs, including WeWork and Uber, did not have enough subscribers and needed to terminate the selling process with the underwriting fee paid anyway. As a result, SPAC is a better alternative because of the smaller administration fee, the shorter time required, lower risk and less restriction by SEC.
On the other hand, many private companies are suffered from the pandemic, facing financial difficulty since 2020. Owners of those private companies are more willing to sell their businesses than before, so SPAC will have a higher chance to find a good private company, negotiate a better deal and get strong support from its shareholders.
SPAC has been introducing many companies to the market since 1990, including Virgin Galactic, DraftKings, Opendoor and Nikola Motor Co. Excitingly, Virgin Galactic’s stock, which went SPAC in 2019, rose from $11.7 on 2nd Jan 2020 to $59.4 on 11 Feb 2021, creating 5 times value in one and a half year.
SPAC is known as Special Purpose Acquisition Company which is a public listing company with no operating business. It usually consists of a Management team, a Sponsor and a group of small public investors.
At the very beginning, the management team, who are the financial expert, private equity fund managers or famous CEO, generate any investment idea, create a shell company and sell to the public. The more reputation the manager has, the better the roadshow story is, the more money will go after his idea. In Jun 2020, a U.S. Hedge Fund Manager, Bill Ackman, had raised the largest SPAC offer, U$4 billion. Investors believed in his investment ability and his track record, hoping the share price of his SPAC to rise in the future.
Moreover, Anthony Leung, the former Financial Secretary of Hong Kong, had raised U$200 million through SPAC with the investment idea of healthcare technology in China in 2018.
Sometimes an entrepreneur of a start-up company is the Sponsor. Sometimes few private investors buy in an interesting idea from Management, becoming the Sponsors. Otherwise, the Management team, who funds themselves at an early stage, is the sponsor too.
The Process of SPAC Listing
The process of listing a SPAC is much easier than a traditional IPO because it is only a shell company without commercial operation or financial history. The SEC needs to take only 3 to 4 months to review. Besides, SPAC requires little preparation work, small administration costs and only one underwriter anyway.
With the approval from the SEC and the Sponsors, SPAC will allocate 20% of total shares which is known as ‘founder shares’ to sponsors, sell the remaining 80% to public investors at U$10 per share in a stock exchange. Normally, warrants will be given to shareholders to gain their long-term investment commitment.
How can Israel be Outstanding in Start-up industry?
Israelites are creative adventurers. Israel is recognized as the start-up nation, which is ranked the world’s fifth most innovative country by the Bloomberg Innovation Index. They have been spending the highest ratio of GDP on civil R&D in the world for years, reporting 4.95% in 2018 according to World Bank data. They are also one of the most patents filed per capita, too. Moreover, their government has established supportive policies to back up innovation and help their entrepreneurs grow, sponsoring exhibitions of all sectors, including Biotechnology, Industrial processing, Chemical engineering, Agricultural Technology, Defence Security, Electrical engineering, Mobility transportation, Green energy and Environmental technology, throughout each year. Over 50% of government spending was allocated to university research and industrial-technological development. Google Chairman, Eric Schmidt, has complimented ‘Israel has the most important high-tech center in the world after the U.S.’ in his visit in 2012.
Israeli start-up companies are attractive to many global investors. In Mar 2021, a Tech investment firm Flashpoint, which is based in London, plans to raise U$200 million for their secondary fund and half of the fund will be allocated to Israel start-up companies with U$350 million in managed assets in the next 3 years. Frankly, Flashpoint has already invested in Israel-based technology companies for their first fund a few years ago.
In the U.S., ION’s first SPAC raised U$260 million and went public in October 2020, making the largest deal in the Middle East and merging with an Israeli tech company, Taboola, at U$2.6 billion valuations. The deal was multiple times oversubscribed, and the fundraising was more than initially planned. The company claims to be the leading discovery platform globally, reaching over 1.4 billion individuals or 44.5% internet users, generating U$1.2 billion revenue and U$34 million operating income in 2020.
Continuously, Israeli electric vehicle tech company Ree with a valuation of U$3.6 billion, smart car company Innoviz which makes sensors for self-driving cars and a fintech company Payoneer will all go public on Nasdaq through merging with SPACs this year. 20 more Israeli companies are joining too. U.S. investors are attracted by their strong share price performance, taking advantage of their 10% to 30% discount versus American peers.
Intelligent Israelites prefer merging with SPAC to raise funding quickly, expand operation faster and gain the advantages of being a public listing company. Everything moves rapidly in the technology industry, so tech companies cannot wait for 2 to 3 years for a traditional IPO. Nevertheless, they can get money from private investors and stay privately owned forever. By listing as a public company, disclosing financial reports and following regulatory requirements, the company will be able to build up a reputation and provide confidence to partners doing business together. Partners will believe that they will not be acquired or disappear tomorrow.
The famous ARK fund manager, Cathie Wood, increased her Bitcoin target to USD400,000 on 10 February 2021. The price has been rising like a rocket since November 2020, just after Pay-Pal had enabled their users to buy, hold and sell Cryptocurrency on 21 October. The market capitalization of Bitcoin hit USD1 Trillion in early 2021, reaching USD 58,330 all times high on 21 February (data from coinmarketcap.com). Year-to-date return as of 3 Mar 2021 was 475% and 5-year return was 12,440%. It was USD1 in 2011.
People buy Bitcoin because of their faith in Blockchain technology with the idea of decentralization. Some people buy it because of they don’t trust fiat currency. Some buy Bitcoin to hedge against inflation. Others buy it to diversify their investment portfolio.
When money is printed by governments around the world, people will demand more Bitcoin to preserve their purchasing power. When Bitcoin price goes up, hedge fund managers will need to invest a portion of their portfolio into Bitcoin to diversify risk and gain a better return and to beat other fund houses. Interestingly, a new blockchain app is offering their users to aggregate all kinds of their digital assets, including loyalty points, in-game assets and air mileages, E-vouchers and coupon, then to convert them into cryptocurrencies. This will further increase the demand for Bitcoin and other cryptocurrencies. In fact, the higher the Bitcoin price, the more investors will be attracted.
However, Bitcoin has a limitation of issuance. Only 21million will be mined eventually, and there are around 18 million coins have been created since inception. When the demand is increasing but the supply is shrinking, Bitcoin price has to go up because buyers can only acquire from the existing holders who are not willing to sell anyway.
Blockchain technology has been appearing in many industries and is widely discussed in many communities. Moreover, Bitcoin price has been a hot topic among investors globally, as it has recovered rapidly after being blocked by China government and tackled by The Securities and Exchange Commission in the U.S. Occasionally, bad news about crypto-exchanges filed bankruptcy due to cyberattack will be heard, alerting governing bodies and triggering their investigations. The more the governors investigate, the deeper understanding of Blockchain technology they will learn. Now they know how powerful this new technology is, and they start to change their perceptions from negative to positive. The dawn of Blockchain technology comes after 10 years of a hard time.
Bank of England was the first central bank to show interest in Blockchain development for Central Bank Digital Currency (CBDC) in 2014, causing other central banks, such as HKMA, Monetary Authority of Singapore, Bank of Canada and Bank of Sweden, to start planning. In 2019, the Bank of Sweden announced their CBDC issuance will adopt the Blockchain technology by 2023, which will be operating by central bank 24 hours 7 days a week, handling onshore/offshore money transactions, exchanging foreign currencies and indicating personal identity information. Their goal is to transform fiat money into digital, achieving a greater effects in monetary policy and reducing the cost of money printing.
Many people have started engaging more in digital transactions and shopping online during the pandemic, so governors have to look into CBDC more seriously. Christine Lagarde, who was the Chief of IMF, told the banks to be open to Cryptocurrencies in 2018. One of the ECB Executives commented Facebook’s Libra was a wake-up call to them, as ECB worried their 200 million users would adopt Libra broadly. Eventually, Lagarde, who is the new Chief of ECB, has planned to launch CBDC within 2 to 4 years in December 2020. She considered new development can improve the implementation of monetary policy, tackle cyberattacks effectively and regulate the Anti-Money-Laundering as well as Financing of Terrorism activities.
Most recently, the Federal Reserve Chairman, Jerome Powell, allows their banks to provide services for Crypto-assets. Immediately, the U.S. banks, such as Citibank, are building their Crypto Services Centres to offer Crypto Debit Cards and Custodian Management for their customers in America as well as Mexico. Furthermore, J.P. Morgan creates their digital coins for customers for payment. Resultingly, investment in Crypto-assets will be more secure with greater protection from those commercial banks.
The industrial revolution took place in 1760, which started with the invention of steam engineering and converted all manual workers into machinery workers. Computerization and the internet started the second industrial revolution from 1960, which linked people and businesses around the world together. Content creations and information sharing become the mainstream media to podcast news or advertisements to everyone throughout the internet. Now we are in a new revolution again, which is Blockchain.
Blockchain is a powerful infrastructure that can link up all kinds of digital content together to achieve comprehensive management as well as enable big data analysis. Let’s imagine all your information, including age, weight, portrait, fingerprints, residential address, financial status, medical history and expenditure history, were saved and kept under your government supercomputer since the date you were born. When you go to a public hospital, you don’t need to show your identity card or fill in any medical form. Hospitals can identify you by your portrait and fingerprint to retrieve your medical history. It will save a lot of paperwork and administration costs.
Blockchain infrastructure is a brand-new zone with a lot of space for project developments. Blockchain applicational projects have been booming in the past 5 years, which has been penetrating in medical, insurance, transportation, education, real estate, fine art and financial industries, etc. All the Blockchain development projects are innovative, creating atomic bombs to disrupt the old traditional methodology in all areas.
As mentioned above, your medical history is kept in digital form within a Blockchain to be share with your medical doctors as well as your insurance agent. When you suffer illness unfortunately and require operational treatment, your insurance agent will access your medical report from your doctor to claim your insurance. You will not be disturbed by your agent, but you will be able to obtain your claim payment much quicker than before.
How many times do you need to show your identity to prove yourself? Buying an air ticket and getting on board, you need to show your identity. When you have saved your identity information on your mobile device and airline companies have access to retrieve your information while purchasing tickets, verification can proceed behind the screen. You will not be required to provide any personal information to their system again and again.
Similarly, in the recruitment and education industries, new employers do not want to hire a person who carries a fake certificate. Top universities have issued digital credentials on Blockchain for their students to identify themselves. Students can just post their digital credentials onto their mobile devices as well as social media platforms for anyone interested to check.
Real estate and fine art are expensive in some countries, especially in Asia. However, the personal incomes of Asians are not as high as the developed countries. The property price to annual income ratios is 45 in Hong Kong, 29 in China, 24 in Taiwan and Korea, according to Numbeo.com report in 2021. A Hong Kong resident requires 45 years of annual income to purchase a home on average. An innovative real estate blockchain project, which attaches a property legal right, will be able to sell a small portion of a property to many small investors who are not able to invest in the property before. As a result, those small property investors can earn a portion of the rental income as well as capital gain without tackling any personal financial issue or property management issue. What a win-win solution to small investors!
Most importantly, Blockchain technology provides a big opportunity for all financial institutions, especially commercial banks and stock exchanges, to restructure their operational engines. Remittances and inter-banks transactions usually required heavy manual works and took at least half a day to complete. Banking staff would not know their mistakes until they were charged a penalty on the next working day. A few years ago, over 100 major banks allied together to form alliances, Ripple and Corda, to establish Blockchain technology for remittance, money transactions, letter of credit as well as security trading. Currently, major banks, including HSBC, have already offered new transactional tools on digital devices using this innovative technology. All transactions can be settled within a second regardless of geographical location, creating large benefit to increase business efficiency, lower operating cost and eliminating unnecessary penalty for the banking industry.
Soon, we will see more and more innovative ideas for Blockchain development to restructure all kinds of businesses in all regions.
Blockchain development started from a whitepaper of Bitcoin posted by Satoshi Nakamoto in 2009. According to the whitepaper, the idea came from The Financial Crisis in 2008 when many major banks and insurance companies had devastated their businesses by over-leverage. Many governments around the world turned on the money printing machines to save those greedy bankers and financial institutions from bankruptcy. There was a risk that inflation could soar and asset prices of housing, food and energy could increase to a level that made most people suffered. Anarchism got more supported by people from main street, who loved Bitcoin because of the idea of decentralization without any governor or financial institution in the middle of their transactions. Advocates started their journey to promote Bitcoin.
A couple travelled around the United States and asked merchants to accept their Bitcoin as payments but failed. All Bitcoin holders like to make bitcoin a payment currency worldwide, and their noise got louder and louder around discussion forums on the internet. On 22 May 2010, a guy in Florida posted a comment ‘I will spend 10,000 Bitcoin for 2 pizzas. I will give Bitcoin if I get 2 pizzas delivered to my house.’ 10,000 Bitcoin was valued USD 41, and 2 pizza was priced USD 25 at that time. Another guy in the United Kingdom read his post and ordered pizza delivery for him. They completed the first Bitcoin transaction and named that day ‘Bitcoin Pizza Day’.
In the early stage, Bitcoin did not have a smooth path because many governments considered it as an anti-government vehicle. They tried to ban Bitcoin transactions, told notorious story and established law to make it illegal. People searched everywhere to find Satoshi Nakamoto for years but not succeeded.
On the other hand, computer scientists have been exploring further in Blockchain technology. Bitcoin was built under the protocol of ‘Proof-of-Work’ (PoW) which required a significate amount of computer power to proceed with verification to prevent double-spending in an account. Computing power means huge energy consumption. In 2013, another better idea, ‘Proof-of-Stake’ (PoS), was proposed in Ethereum. it solved the problem caused by PoW. It does not consume a huge amount of energy. Its verification process is at least twice as fast as Bitcoin because the verifying work will only assign to few largest stakeholders anyway. Given this simple and faster infrastructure, Blockchain development projects in different industries tick off everywhere geographically.
China is the major economy to grow in 2020. China economy grew 2.3% in 2020, despite Covid-19 shutdowns causing output to slump in early 2020. The final three months of the year even got a pick up to 6.5% (1).
Coronavirus pandemic slowed down a lot of PE, listing, mergers and acquisitions activities in 2020 worldwide. However, the annual Israeli Tech Review 2020 showed that Israeli tech firms had raised a record $9.93 billion in 2020, up 27% year on year (2)!
14th Five year plan of China encourage more Chinese investment for Israeli tech firms and encourage Israel tech firms enjoy their business success through expanding their services to china. However, how these firms can expand their business during the travelling restricted pandemic time.
Virtual culture evolved during the pandemic time enable more effective virtual CFO and COO operations run in regions with different time zones!
Learning the survival skill riding on numerous virtual tech evolved during the pandemic time, China enterprises and Israel tech firms may collaborate and operate through virtual means for the synergy of success!
(1) BBC news, JAN 21 “Covid-19: China’s economy picks up, bucking global trend” (2) The Times of Israel, DEC 20 “Israeli tech firms raise record $9.93 billion in 2020 but M&A deals plunge”