ASX won’t relent on SPACs but keeping options open

The ASX has ruled out jumping on the special purpose acquisition companies (SPACs) bandwagon currently sweeping through Wall Street, despite concerns that its reluctance could force Australian technology companies to list offshore.

A SPAC, also known as a blank cheque company, is a shell that raises money in the market and then seeks out a private company to buy or merge with. They don’t have any products to make or sell and have two years to find a home for the cash raised or return it back to the parties that pitched in.

The New York Stock Exchange welcomes Catcha Investment Corp (NYSE: CHAA) on February 12, 2021, in celebration of its SPAC IPO.Credit: NYSE Bell Ringer: Chris Taylor, VP, NYSE Listings and Communications)

Putting money into a SPAC may seem a big leap of faith but it’s a plunge that investors in the US are increasingly willing to make. There were 60 listings using SPACs in January alone, raising close to $US26 billion.

However, the ASX is no stranger to the phenomenon having put a lid on “cash box companies” in the late 80s, prohibiting listings where cash is more than 50 per cent of the assets and requiring a commitment as to how the cash will be spent.

Max Cunningham, executive general manager of listings and issuer services at the ASX says the current rules aren’t coming down anytime soon.

“We have had approaches from parties about our preparedness to consider changing or waiving our anti-cash-box rules to facilitate SPAC transactions,” he said.

“However, the history of cash box companies in Australia has been poor and there are important scale, regulatory and commercial differences between the Australian and US markets.”

But with ultra-low interest rates and investors chasing the growth, especially in the technology sector, it’s hard for the ASX to ignore SPACs completely.

“The ASX is examining the SPAC phenomenon closely,” Mr Cunningham said. “Our focus is on achieving the best outcome for the Australian market and for local investors.”

While other markets especially the US have embraced SPACs as a way to partially address a decline in listings and capital flows on public markets the ASX believes it has a healthy pipeline of new listings. There are also differences with the traditional IPO process in the United States which is relatively more complex, time consuming and expensive than in Australia.

“The structure for SPACs is evolving,” he said. “We are doing work to consider the opportunity carefully. We will listen to the market and take a cautious approach.”

However investors like Matt Allen, chief executive at Tractor Ventures, warned that the ASX’s antipathy towards SPACs will inevitably drive Australian technology companies to go list on exchanges like the NYSE and NASDAQ rather than the ASX.

“We will definitely lose more tech companies over there through SPACs as it just makes life easier,” he said. “Companies don’t have to do a roadshow in front of investors and it is a much simpler process.”

Mr Allen said he hoped the ASX would look carefully at SPACs and put the structure on its roadmap.

“It’s better than a backdoor listing in a dodgy mining company with all the baggage that comes with,” he said.

The ASX, for the time being, is not worried about a local tech listings drought or losing them to overseas markets.

“That’s a risk but to me that’s not the reason to do SPACs,” Mr Cunningham said. “The reason to do SPACs would be we think it’s a sensible policy setting which complements the listings framework that we have.”

While the Australian bourse remains a no-go zone for SPACs, Ausralian companies aren’t shying away from testing the waters. Telstra’s venture capital arm, Telstra Ventures, is an investor in esport startup Skillz which listed in the United States in December through an SPAC.

Yash Patel, partner at Telstra Ventures, said SPACs are right for the right company.

Partner Yash Patel said SPACs were becoming increasingly common in emerging sectors like esports and electric vechicles, both areas where the market’s ability to forecast revenue is unclear. He’s confident that the trend will find its feet over time.

“My view is SPACs are right for the right company,” he said. “SPACs enable you to get to market in two to four months compared to an initial public offering which can take a year.”

Mr Patel said the appetite for SPACs was only going to continue to grow.

“You will see some interesting SPACs with higher profiles emerging,” he said.

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