Special purpose acquisition companies (SPACs), also known as blank-cheque companies that raise capital on foreign bourses for acquisitions are resurfacing. Constellation Alpha Capital, the first such SPAC in almost over a decade, raised $144 million on the Nasdaq, signalling peak US investor interest in the India growth story.
Marquee investors BlackRock, DE Shaw and Moore, along with others are said to have participated in the blank-cheque IPO to build an Indian business through acquisitions. Floated by Rajiv Shukla, former CEO of Pipavav Defence and Engineering, the Florida-based Constellation Alpha told investors that it would benefit from the economic and investment reforms unleashed by Prime Minister Narendra Modi. While blank-cheque companies were initially driven by India's demographics, investors are now mainly excited about Modi's economic agenda.
Board of directors on the company include former Pfizer country head Kewal Handa, ex-Tata Sons director Alan Rosling and retired Karnataka chief secretary J Alexander.
Former Morgan Stanley and Pfizer dealmaker Shukla and his team pointed out to investors that there were only 12 Indian companies listed in the US compared to 122 Chinese and 26 Brazilian. This provided international investors an effective route to participate in the fastest growing major economy through a dollar-denominated, liquid stock subject to the mandated corporate governance and transparency standards, said the filings.
In 2015, ex-MGM chief Harry Sloan and former co-president of Sony Pictures Entertainment Jeff Sagansky floated a SPAC, Silver Eagle Acquisition, which ended up by buying 38% stake in Videocon d2h for $273 million and listing it on the Nasdaq.Videocon d2h and DishTV are currently executing a merger deal to create India's largest direct-to-home TV service with 27 million subscribers. Last year, online travel agency Yatra.com reverse-merged with another US blank-cheque company Terrapin 3 Acquisition. However, these companies were not floated with the explicit intent of acquiring India-specific assets.
SPACs entered the Indian investment scene in 2007 at the height of the last decade's boom, though it was relatively a non-starter. Half a dozen of them had raised about $500 million to acquire under-valued, mid-sized Indian companies. Trans-India Acquisition, backed by former ICICI Bank chairman N Vaghul, and Atlas Acquisition Holdings, floated by former Sunglass Hut CEO James Hauslein and Gaurav Burman of Dabur family, were the prominent ones. Millennium India Acquisition, India Hospitality, Phoenix India and India Globalization Capital were the other blank-cheque companies that raised funds for local buyouts. Many of them wound up hit by the sub-prime crisis and the Wall Street crash following the Lehman Brothers failure. SPACs have made a comeback with the US capital flow to the emerging markets reviving in recent quarters - aided by the bounce-back in commodity prices that help economies like Brazil. Over the last five years, the aggregate dollar volume of the American SPAC market is 70% more than the entire IPO dollar volume of the Indian market. The funds raised are held by a trust and drawn down for approved investments. It is dissolved and cash returned to investors if the company is unable find deals within the prescribed time-frame, which is usually within 24 months.
