Special Purpose Acquisition Vehicles (SPACs) have emerged as a promising option to raise public funding from offshore markets. They are especially suited for start-ups, who otherwise find it difficult to excite the conservative Indian retail investors. This has become all the more critical as there is evidence that private funding may be drying up and it may be a while before it returns as a substantial source of capital for start-ups. With SPACs, the start-up gets listed through a reverse merger with a listed shell company, i.e., the SPAC, which acquires the start-up.

Indian laws also need to be suitable amended to facilitate overseas fundraising by startups.

SPACs regulatory evolution- globally

Globally, SPAC regulations have evolved over the past many years. SPAC structures are more shareholder friendly and have ample fail-safe measures to prevent fraud. Lock-in periods ensure that founders have some “skin in the game” and minimize agency costs. Successful SPAC listings over the years have reduced risk perceptions and, consequently, the associated upfront costs, such as underwriter’s fee, has also come down. India has seen a reasonable number of acquisitions by SPAC recently:

  • Yatra was acquired by Terrapin 3 Acquisition Corp (TRTL), a NASDAQ-listed SPAC. TRTL was listed on NASDAQ in 2014 and Deutsche Bank was their underwriter.
  • Videocon DTH was listed on the NASDAQ through a reverse merger with Silver Eagle Acquisition Corp, a SPAC. Silver Eagle was listed in 2014 and Deutsche Bank was their underwriter.
  • Constellation Alpha Capital Corp., a SPAC, was listed on the NASDAQ in 2017. It is focussed on acquiring a target in healthcare services and manufacturing industry in India. Cowen acted as the underwriter for the offering.

In addition to the above, there have been multiple SPAC acquisitions in India in the past, including:

  • Trans-India Acquisition Corp.’s acquisition of Solar Semiconductor in 2008; however, the position was liquidated in 2009. Trans-India was an AMEX-listed SPAC whose offering was underwritten by Joseph Gunner and Co.
  • Presently delisted, Phoenix India Acquisition Corp. was listed as a SPAC on the NASDAQ in an offering underwritten by Gersten Savage. They acquired Citius Power in 2008.

Two inferences can be drawn from the above information. Major investment banks, who are active in the IPO market, have actively underwritten recent SPACs. Compared to this, SPAC underwriters in the early 2000s were more specialized. This goes back to the argument that underwriter fees have come down as competition has increased and, as a result, only the larger mainstream investment banks find it profitable to underwrite SPAC listings. Another important point to note is that the recent India-focussed SPACs were more successful and were listed on more prominent exchanges such as the NASDAQ. All this points to the increasing acceptance of SPACs as an additional avenue to raise capital in India.

Regulatory framework in India

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