Emerging markets have so far been on the fringes of a fundraising boom using so-called SPACs or special-purpose acquisition companies, which could potentially unlock a vital new source of cash for entrepreneurs in developing regions. But the take-off of SPAC fundraisings in these markets hinges in part on the success of a few recently-delayed landmark deals, reflecting wider global investor caution about this funding tool. SPACs allow investors to list a shell company on public markets before they have identified a business to buy, which provides a speedier route to an initial public offering.
In excess of $115.6 billion has been raised via more than 400 SPACS or blank-check companies this year, mainly on Wall Street where SPACs make up two thirds of all Initial Public Offerings (IPOs), although activity has slowed as regulatory and valuation concerns have increased. In contrast, a total of $1.18 billion has been raised this year via six SPACs by emerging market issuers, including two apiece from Israel and China. This is just a fraction of the $96.3 billion raised via traditional IPOs from emerging markets, based on Refinitiv data.
“The explosion and subsequent quenching of SPAC enthusiasm in developed markets provides a potential lesson for emerging markets to learn from,” said Alex Korda, analyst at consultancy The Edge Group.