Asia’s Vibrant Tech Hub: SPACs & Take-Privates Set Off in 2022

The Real Deal Podcast

In this episode, we’re looking at two major corporate trends: U.S.-listed SPACs combining with Asia-based tech companies and private equity-backed take-privates of U.S.-listed Chinese headquartered tech companies. Joining host Julie-Anna Needham is Marcia Ellis, global chair of the private equity group at Morrison & Foerster. Dealcast is presented by Mergermarket and SS&C Intralinks.

In this episode, you'll learn about:

  • Factors driving the rise in these trends – Will they continue?
  • Regulatory headwinds in the APAC market
  • New Hong Kong SPACs driving competition for tech targets
  • Examples of how U.S. regulation is impacting private equity-backed take-privates


[MUSIC PLAYING] JULIE-ANNA NEEDHAM: Welcome to Dealcast, the weekly M&A podcast presented to you by Mergermarket and SS&C Intralinks. I'm Julie-Anna Needham, a journalist who's been covering M&A for a decade. This special episode is in partnership with Morrison and Foerster. In this episode, we're looking at two major corporate trends, US-listed SPACs combining with Asia-based tech companies, and private-equity backed take privates of US-listed Chinese headquartered tech companies. I'm joined by Marcia Ellis, global chair of the private-equity practice at Morrison and Foerster.


Hi, Marcia. Thanks for joining us today.

MARCIA ELLIS: Thanks for having me.

JULIE-ANNA NEEDHAM: So let's start off by looking at SPACs. Are you seeing a rise in U.S.-listed SPACs combining with Asia-based tech companies?

MARCIA ELLIS: Yeah, we're definitely seeing a rise in this sector. There were 24 de-SPACs involving Asia-based companies, 15 of which were technology companies, and that's since 2020. So de-SPACs, as you know, are what we call the combinations, the mergers that go on between the SPAC and a target. And there's been a big increase between 2020 and 2021. There were three in 2020 and 20 in 2021.

Now in 2022, we're at the very beginning of the year, there's only been one filed so far. But we're expecting to see a considerable number. And one example that we've seen that has really caught the attention of the world is the merger between Singapore's Grab and Altimeter Growth Corp. Grab's valuation was nearly 40 billion U.S. dollars, making it the world's largest-ever company to complete a listing by de-SPAC.

JULIE-ANNA NEEDHAM: And what's driving this trend?

MARCIA ELLIS: Well, I mean, in some ways, it's just simple mathematics. There are 500 US-listed SPACs that are still looking for targets. And there just aren't enough suitable targets in the U.S. market.

So they have to go out to some other market. And Asia, in many ways, is the most logical market. Given the size of these SPACs, the likelihood is that their targets will need to be unicorns. And Asia is second only to the U.S. in the number of unicorns it has.

So it is really just a logical step for these SPACs to be looking in Asia for targets. We had predicted already at the beginning of 2021 that this trend was going to be-- there was going to be a significant increase in the number of de-SPACs with Asia-based companies. And we've seen that.

Now I think that there would have been even more in 2021 if there hadn't been a lot of regulatory headwinds that sort of tamped down the number of people who were able to do de-SPACs with Asian companies. But, by and large, advisors are finding ways to deal with the tax risk and other regulatory risks that come up with de-SPACs with Asia-based companies. And so we should see more of these in 2022.

JULIE-ANNA NEEDHAM: Yeah, and it feels like it's quite an evolving area, I'm guessing, for the advisory community with the SPAC trend, firstly, but also the kind of cross-border, the regulatory headwinds that you mentioned. There must be a lot of moving parts.

MARCIA ELLIS: There are a lot of moving parts and a lot of new structures that people have to come up with to deal with, for example, tax, that might arise in a specific jurisdiction in a way that it wouldn't if we were doing this de-SPAC between a U.S. SPAC and a U.S. company. So, yeah, there's a lot of brainpower that has to be put into this in order to decide. But once the advisors settle on suitable structures, it'll be applicable to many, many companies.

JULIE-ANNA NEEDHAM: And linking to that, the Hong Kong Stock Exchange recently issued the conclusions of its consultation on SPACs. How has that changed things? And how do you expect that to change things in the coming years?

MARCIA ELLIS: Well, even though the Hong Kong SPAC regime has only come into effect as of January 1st of this year, there have already been four Hong Kong SPACs that have filed. And all of them are seeking targets in China, in the technology and biotechnology/ healthcare sectors. So we are going to see competition for US SPACs, as far as targets are concerned, and it may be that those Hong Kong-listed SPACs will be more attractive to targets, just because there's various regulatory reasons that a Hong Kong listing, in some ways, is more attractive for a Chinese company than a U.S. listing.

When we originally saw the original consultation paper that the Hong Kong Stock Exchange issued on SPACs, we thought it might not be attractive to SPAC sponsors and to targets, because there were a lot of features that the Hong Kong Stock Exchange was being rather conservative on that made the regime less attractive than the U.S. regime. But in reality, they heard some of the comments from market players. And they did tweak some of the features in the final version so that it is somewhat more attractive. And we're seeing in the market that there's considerable traction with sponsors at least.

So we're expecting that in 2022, we may see SPAC-offs, which are auctions involving a particular target, where you've got Hong Kong SPACs and U.S. SPACs going after the same target. And you may have those Hong Kong SPACs being much more attractive to the targets, because of, as I said, these regulatory differences between Hong Kong and U.S .listings. And the US SPACs may have to offer better economic terms to targets in order to incentivize them to go for a U.S. SPAC rather than a Hong Kong SPAC.

JULIE-ANNA NEEDHAM: Yeah, you can imagine it's a lot easier for a Chinese company to be listed in Hong Kong rather than the U.S.

MARCIA ELLIS: Yes, at this point, and the U.S. market is actually somewhat unattractive to Chinese-based companies right now, because of the U.S. Holding Foreign Companies Accountable Act, which deals with about, essentially, how the audits are done of companies. And currently, China-based companies are unable to fulfill the requirements under these acts, because of Chinese laws that restrict them from fulfilling the requirements. So if they are not able to fulfill these requirements for three years running, they will be forcibly delisted from the U.S. exchanges. So you can imagine that not a lot of people are going to want to go into a U.S. listing when they may be forcibly delisted in three years.

JULIE-ANNA NEEDHAM: Yeah, that's really interesting. So turning to another type of dealmaking linking the U.S. and Asia, private-equity backed take privates of U.S.-listed Chinese headquartered companies. Can you tell me what activity you're seeing in that space? And what are the notable examples?

MARCIA ELLIS: Well, this trend is resulting from the same issue that I was talking about of the accounting-related issue under the Holding Foreign Companies Accountable Act. So China-based companies that are U.S.-listed are looking at the possibility of being delisted in three years. So they are starting to think of other options for themselves. And one option is that the controlling shareholder get to set up a consortium usually with private-equity funds.

And does it take private of these U.S.-listed companies with an intention to perhaps list later in Hong Kong or list on the Chinese markets? So this has become a rising trend in Asia. And we expect to see more of these take privates in 2022. Some of the ones that have been announced or have completed recently is there's a, which is an online classified business, which would did take private backed by Warburg Pincus, and General Atlantic, and a local PE fund Ocean Link partners.

And one that is pending is 51 Jobs Inc, which is an online/offline human resources services business. And there is a take private pending right now with DCP partners, which is a spin-out of KKR and Ocean Link partners. So we're seeing a lot of these. It's very complex, because there have been a lot of regulatory changes in China recently. And sometimes those regulatory changes can impact these take privates.

For example, there was a take private involving a tutoring company, Tirana International, which was pending at the time the Chinese government issued new regulations on tutoring that effectively made foreign investment in tutoring illegal. Eventually, that take private was terminated and not completed, because of these new regulations. But we expect to see more of this in 2022.

JULIE-ANNA NEEDHAM: And is there still an appetite by the big U.S. private-equity firms, who, as far as I'm aware, still have a lot of dry powder to deploy? Do they still have quite a strong appetite for take-privates of Chinese headquartered companies?

MARCIA ELLIS: Yeah, I think that they are learning how to be more careful about the sectors they choose because it really is a sector-by-sector issue. But I think there is still strong appetite. And we are hearing about quite a number of take-privates that people are planning at this point. So I think that they do have appetite for this. The ability to have returns, significant returns from the difference in trading price on a U.S. market, and a trading price on a Hong Kong, or a Chinese market is very attractive.

JULIE-ANNA NEEDHAM: And you touched on it a bit there, but do you expect the trend to continue?

MARCIA ELLIS: We do expect these trends to continue. Things could always happen by changing regulations and making investors sort of get-- to get cold feet because of this. So that's always a possibility. But the signs that we're seeing are that these trends are going to continue.

JULIE-ANNA NEEDHAM: All right, Marcia. Thank you very much for your time. That was Marcia Ellis, global chair of the private-equity practice at Morrison and Foerster. Thank you for listening to this week's episode of Dealcast presented by Mergermarket and SS&C Intralinks.

This special episode is in partnership with Morrison and Foster. Please rate, review and follow the podcast. You can find us on Apple Podcasts, Spotify, or look out for your Mergermarket news alert. For more information, check out our show notes. Join us next week for another episode.