HONG KONG SAR – Media OutReach – 22 February
2021 – 2020 proved to be a great year for Special Purpose Acquisition Companies
(SPACs). The market saw more high-profile investors joining the party while a
record number of companies went public through this unique structure. With a
whopping US$80 billion raised by over 230 blank-cheque companies, SPAC IPOs not
only represented approximately 50% of total IPO issuance in the US in 2020, the
massive amount raised by SPACs even eclipsed traditional IPOs last year.
Mr. Dennis Tam, President and CEO
SPAC Trend Continues To Heat Up
While SPACs continue to be favoured by institutional and private
investors alike in the US, they are also gaining momentum in Asia. Savvy
investors in the East are catching up fast with the trend and among them is Black
Spade Capital Limited, the family office of casino magnate Lawrence
Ho Yau Lung.
“We aim to be one of the first Asian family offices to build an
SPAC-themed portfolio,” said Mr. Dennis
Tam, President and CEO of Black Spade Capital. He added that “of course, we
have to be selective — only high-quality SPACs with great potential are
considered”.
One catalyst, Two Criteria
Mr. Tam considers the current close-to-zero or, in some cases, negative
interest rate environment as one of the catalysts that contribute to the
success of SPAC IPOs. “Loose monetary policy means lower cost of funds and
greater incentive for investors to look for new investments. SPACs enjoy a
great start this year with over US$45 billion raised by more than 140 new SPACs
to-date — the fact that both the number and size of SPAC deals in the first two
months of 2021 represent some 56% of the full-year performance in 2020 reflects
just how buoyant the SPAC market is. The whole SPAC trend has to do to a
certain extent with the abundance of capital in the market seeking return. When
the interest rate picks up, the trend may slow down” said Mr. Tam.
Mr. Tam commented that the family office places importance on the
sponsors in terms of selection criteria. “There are two main criteria —
sponsors’ reputation and their track record. Sponsors are the face of an SPAC.
They set out the road map of the investment vehicle. Their track record gives
us a glimpse of what the sponsors are capable of. I always find one-on-one
investor meeting a good way to learn about the vision and strategy that the
sponsors have for their SPACs. A reputable sponsor boosts investor confidence.
Some people point out that sponsors typically receive 20% of the equity in the
SPAC; in my opinion, this mechanism helps align sponsors’ interest with that of
investors which is actually positive — as long as the sponsors deliver, they
deserve a matching reward. After all, if the sponsors successfully acquire or
merge with a promising target (i.e. de-SPAC), everybody wins” explained Mr. Tam.
The relatively straightforward structure of SPACs also begins to appeal to many family offices. “As the name
suggests, an SPAC has the sole purpose of merging with a private company and
taking it public. The tenor is usually capped at two years and the sector from
which the SPAC identifies its acquisition target is announced before the SPAC
is listed. The fund raised by an SPAC usually serves as a good indication of
the size of the future target, which is typically 3x to 4x the size of the
SPAC. This is the kind of clarity that investors appreciate,” explained Mr. Tam.
“Also, SPAC issuers offer to redeem the shares from investors at a call price
equivalent to the IPO price if they do not like
the acquisition target. This capital protection mechanism affords greater
assurance to investors” added Mr. Tam.
Mr. Tam believes that investor education will encourage more Asian family offices as well as
other investors in the region to
participate in this SPAC trend. “We had several rounds of in-depth discussions
with various investment banks and private banks before making our first SPAC
investment last year,” recalled Mr. Tam. “In the process, our bankers get to
understand our investment appetite and selection criteria and are able to
introduce different SPAC opportunities to us” said Mr. Tam.
In terms of Black Spade Capital’s target return with regard to SPACs,
“We have seen some truly impressive performance of certain star SPACs, such as
QuantumScape and Draft Kings, which have realized a return of close to 10x and
4x, respectively, in 2020. Naturally, we look for above average return and we
believe the key to achieve this is to invest in quality SPACs at the time of
IPO” said Mr. Tam.
About Black Spade Capital Limited (黑桃資本有限公司)
Black Spade
Capital Limited is an established family office that manages the private
investments of Mr. Lawrence Ho. Headquartered in Hong Kong, its global
portfolio consists of a wide spectrum of cross-border investments as it
consistently seeks to add new projects and opportunities to its investment mix.
Black Spade’s investment strategy maximizes coverage of geographic regions and
sectors whilst maintaining a portfolio of diversified asset classes, ranging
from equity, fixed income, medical technology, leisure and culture, green
energy, real estate to Pre-IPO investments.
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