SGX’s first spac VTAC seeks investments at cutting edge of disruptive technology

1. Why do a spac now?

Spacs have been gaining attention and garnering strong momentum in Asia, in tandem with the rise of nu­merous technology companies in the region. Facilitating the strong interest in Asian spacs is the diverse set of investors who are familiar with the spac offering, with some even being spac sponsors in the US.

Given favourable market senti­ments for spacs in Asia and the ma­turity of local investors, VTAC be­lieves that the time is ripe for a spac listing in Singapore. VTAC’s listing will provide public market inves­tors with the opportunity to invest in fast-growing technology compa­nies at the forefront of technologi­cal transformation.

2. How does VTAC differentiate itself from other spacs?

See also: OEL Holdings enters the medtech sector

VTAC leverages the valuable experi­ence of its sponsor, Vertex Venture Holdings (Vertex). Vertex is a Sin­gapore-based global venture capi­tal platform, which provides anchor funding and operational support to a proprietary global network of ven­ture capital funds in key innovation hubs. Across the Vertex ecosystem, it manages a portfolio of over US$5.1 billion ($6.86 billion) assets as of Dec 31, 2021, comprising over 200 companies, including divestments.

Vertex has an over 30-year track record of notable investments, having successfully invested in innovative technologies and divested reputable companies in the US, Europe, Singa­pore, Hong Kong, China and Taiwan.

Vertex is also a wholly-owned sub­sidiary of Temasek Holdings and is reputed as a credible long-term val­ue-added partner that has been able to supercharge growth and help busi­nesses succeed. Vertex seeks to create value for its start-up portfolio com­panies through talent recruitment, business development, fundraising and joint venture support, market­ing and community development, and regulatory navigation.

See also: How GSS Energy is integrating sustainability with its business operations

3. What is the Vertex ecosystem?

The Vertex ecosystem comprises two funds:

(1) Vertex Network Funds — Man­aged by various independent general partners through a partnership model grouped under Vertex Ventures Isra­el, Vertex Ventures USA, Vertex Ven­tures China, Vertex Ventures Southeast Asia & India and Vertex Growth with a total AUM of US$3.7 billion as of Dec 31, 2021, including divestments.

(2) Vertex Captive Funds — 10 whol­ly-owned and managed funds with a total AUM of US$1.4 billion as of Dec 31, 2021, including divestments.

Together, the Vertex Network Funds and Vertex Captive Funds spread across the key innovation markets and ecosystems of Southeast Asia, India, China, the US and Israel. With entrenched local teams in each re­gion, Vertex offers in-depth local knowledge, expertise, and networks to its stakeholders and investments.

4. Could you share more about your track record on past investments?

Accolades from industry specialists point to Vertex’s strength in guiding the success of disruptively transfor­mational start-ups. In 2019, Vertex was recognised by Crunchbase as among the Top-5 most active priva­cy and security Investors globally.

For more stories about where money flows, click here for Capital Section

Furthermore, for the third consec­utive year in 2020, the General Part­ner of Vertex Ventures China was recognised with the “Golden Bull Venture Capital Annual Outstand­ing Institution” award by China Se­curities Journal and shortlisted in Forbes 2020 — Top 100 China’s Best Venture Capitalists.

For more details of exits made by Vertex, please refer to table 1.

5. How is sponsor Vertex aligned with the interests of VTAC minority shareholders?

VTAC is structured by the sponsor to align its long-term interests with in­vestors by committing to the success­ful completion of the initial business combination. Vertex has committed $30 million in capital through the subscription of VTAC units (known as sponsor IPO investment units) that are locked up till six months af­ter the completion of the initial busi­ness combination.

Additionally, the sponsor will also contribute “at-risk” capital of up to $10 million by entering into a private placement warrants purchase agree­ment with VTAC, under which the sponsor shall procure Vertex CoIn­vestment Fund (Vertex SPV), a whol­ly-owned subsidiary of the sponsor, to subscribe for private placement warrants which will become exercis­able on the later of the date that is 30 days after the completion of the initial business combination or 12 months from the date of closing of the offering. The at-risk capital shall be used to pay for offering expenses and operating expenses.

Following the completion of the initial business combination, up to 10.59 million shares will also be al­lotted and issued to Vertex SPV, sub­ject to a time-based and price-based vesting schedule after the initial busi­ness combination. Such vesting sched­ule aligns the interest of the sponsor with the other shareholders.

6. How does VTAC plan to use the IPO proceeds?

A hundred per cent of gross proceeds raised from the offering — including proceeds raised from the exercise of the overallotment option, if any — and the issuance of units to the cor­nerstone investors and the sponsor IPO investment units will be placed in an escrow account, which is be­yond the 90% requirement in list­ing rules.

These gross proceeds may only be used for the consummation of the initial business combination, and the payment of deferred under­writing commissions. Interest earned on the escrow funds may be used to pay income taxes and operating ex­penses if any.

7. When will the initial business combination happen and what if it does not materialise?

VTAC must complete an initial busi­ness combination within 24 months from the listing date (or may be ex­tended up to 12 months under ap­provals and subject to an overall maximum time frame of 36 months from the listing date). The initial business combination will be sub­ject to the simple majority approv­al of the independent directors of VTAC as well as an ordinary reso­lution passed by the shareholders at a general meeting to be convened for this purpose.

If an initial business combination is not consummated, the amount then on deposit in 1) the escrow account, including interest earned and not re­leased to pay for taxes or operating expenses, if any (less any liquidation expenses); and 2) any other bank accounts held by VTAC, will be re­turned to shareholders, cornerstone investors and the sponsor.

8. What’s your investment philosophy and what do you look at when evaluating a potential acquisition target?

VTAC’s mandate is to complete an initial business combination with a business having a core technology fo­cus with highly differentiated prod­ucts and scalable business models that aims to improve people’s lives by transforming businesses, markets and economies.

Our selection criteria include iden­tifying targets that are at an inflexion point of their growth journey, with a strong management team and pos­sess cross-border potential. These targets must have market leadership and be attractively priced relative to their peers which may provide up­side potential and benefit from pub­lic market access.

Using the above selection crite­ria, refer to Table 2 for the six invest­ment themes and market potential that VTAC plans to focus on.

9. How will you find your target for a business combination?

As a limited partner of Vertex Net­work Funds, Vertex has the benefit of receiving proprietary insights reg­ularly on the performance, growth and market outlook of the investee companies within the Vertex Net­work Funds. This allows VTAC to have key insights in identifying and evaluating the suitability of such in­vestee companies within the Vertex Network Funds as potential business combination targets.

In addition, VTAC’s management team (with the support of Vertex and its subsidiaries as well as the Vertex Captive Funds and the Vertex Net­work Funds) has also built a broad network of contacts and corporate re­lationships globally. This network has grown over the years and we believe that it will provide us with valuable insights into potential investment op­portunities from third-party sources.

10. What is VTAC’s value proposition to its shareholders and potential investors?

VTAC seeks to create long-term val­ue for our target company and stake­holders by leveraging our sponsor’s global network, well-established shareholder ecosystem and deep lo­cal expertise.

VTAC’s listing on Jan 20 as Sin­gapore’s first spac is only the begin­ning of the journey. Looking ahead, VTAC places greater emphasis on identifying a suitable target compa­ny that will yield a strong business combination at the de-spac stage.

With the guidance of its sponsor, it looks to grow the target company to greater heights and strive to pro­vide greater value for VTAC’s stake­holders.

Emelia Tan is a research analyst with the Singapore Exchange.