Australian duo David Andrada and Tristan Lo recently incorporated a Singaporean shell company called Fat Projects Acquisition Corp (FATP). They intend to take the company public as a special purpose acquisition company (SPAC), in the hopes of acquiring a business after the IPO.
However, FATP will not be listed on the Singapore Exchange (SGX) as SPACs have yet to be introduced here. Instead, it will be pursuing a SPAC listing on Nasdaq.
On July 8, FATP announced that it filed a registration statement on Form S-1 with the US Securities and Exchange Commission (SEC) for a proposed US$100 million ($135.9 million) IPO. The company is offering 10,000,000 units at US$10 apiece, consisting of one Class A ordinary share and one-half of one redeemable warrant.
Only whole warrants are exercisable. Each whole warrant entitles the holder to purchase one Class A ordinary share at a price of US$11.50 per share, subject to adjustment as described in the Registration Statement. The company has applied to list its units on Nasdaq under the symbol ‘FATP’.
The company’s announcement comes after the Singapore Exchange Regulation (SGX RegCo) proposed its SPAC regulatory framework on April 1. The stock market regulator had sought market feedback on how to take a balanced approach given the risks associated with SPACs, such as freeriding by investors, excessive dilution of long-term investors and the rush to acquire a business at the expense of proper due diligence. Investor interests must be safeguarded, SGX RegCo said, while enabling an innovative way to meet the capital raising needs of the market.
While the public consultation had ended on April 28, SGX RegCo has yet to announce whether it would introduce SPAC listings here. In response to queries from The Edge Singapore, a SGX spokesman says an announcement will be made in due time.
“The SPACs proposal has drawn one of the highest response rates ever for an SGX public consultation. We are deliberating the responses received and have been in further engagements with the market community including respondents and regulators. Cognisant that the matter is of great interest within and outside of Singapore, we will provide an update as soon as a decision is made,” the spokesman adds.
‘Steve Jobs and Steve Wozniak’
Asked if Andrada and Lo had considered waiting for SGX RegCo to allow SPAC listings on SGX — to list FATP here — they said they “haven’t really looked at it”. However, both co-CEOs of FATP — who are also CFO and chairman of the board, respectively — would not discount pursuing future SPAC listings here — if such a structure is allowed on SGX.
“To answer your question, why not?” Andrada tells The Edge Singapore in a recent interview. “This won’t be our only SPAC. Our desire and intention are to actually keep doing this in the foreseeable future.”
Andrada and Lo are among the many industry executives who are trying their hand at setting up and listing a SPAC. They are known as the SPAC sponsor.
Financial services firm Jefferies says SPAC sponsors are increasingly composed of industry executives, who have public company experience or have sold their prior business and are now seeking new opportunities.
Often, they have significant merger and acquisition (M&A) experience and a proven ability to source deals.
According to Jefferies, 76% of SPAC IPOs in 2019 were sponsored by industry executives. This is up from 65% in 2018 and 32% in 2017.
But just who are Andrada and Lo? The former previously held senior positions at HSBC and Bank of America Merrill Lynch (now known as BofA Securities) across Singapore, Australia and the US.
Andrada is also a board advisor to small and mid-cap firms in Southeast Asia and Australia on corporate finance and M&A in industries including technology, telecommunications, media, energy and infrastructure. He is currently based in Sydney.
Lo, on the other hand, is an entrepreneur and investor from Sydney. He moved to Singapore with his family about eight or nine years ago.
He says he founded and exited several businesses in many industries, including hospitality, education, e-commerce and FinTech. Lo had also been retained by some of Asia’s largest blue chip companies including Hong Kong telecommunications company PCCW and Indonesian e-commerce company JD.id to help them scale their e-commerce operations.
‘Side hustle’
In 2015, Andrada and Lo established Fat Projects, an investment holding company which they said started off as a “side hustle” holding various business activities they had embarked on together. Fat Projects aims to deploy capital across a portfolio of technology, fintech, education, hospitality, e-commerce and food technology start-ups. It so far has nine companies in its portfolio, including FATP.
Lo says Fat Projects enabled Andrada and him to bring their skill sets together to help other start-ups to scale and raise funds. “We’ve been doing that together for a few years and having a lot of fun with that,” he tells The Edge Singapore. “But now, we’re very much focused on taking this [SPAC] to the next level.”
“It’s almost like Steve Jobs and Steve Wozniak were doing a side hustle on Atari. Then suddenly it’s become what Apple is now,” offers Andrada. “[Likewise, for us], from a side hustle, it’s become a full-blown venture investment. And I’m very excited.”
So, why did they decide to not list Fat Projects instead? Andrada says that as an investment holding company, Fat Projects may not be the most ideal structure to be listed.
“I think that’s going to be a little bit complicated, because some of the companies that are now in later stage investment will have a minority stake,” he adds. “But Tristan and I have spoken about it and were thinking about how to go to the next level. And we think SPAC is the next level.”
Still, the number of SPAC listings have declined this year, after a spectacular boom of such listings — especially in the US — last year. Investor interest may have fizzled out as the craze subsides in addition to regulatory scrutiny.
Is FATP late to the game? Nils Michaelis, who recently joined FATP as its president, chief operating officer and head of mergers and acquisition, does not believe so. He reckons the current decline in SPAC listings is due to regulatory scrutiny from US authorities, which is only temporary. “Now it’s picking up again, and there’s a lot of liquidity in the market,” Michaelis, who is also managing partner at Fat Projects, tells The Edge Singapore.
German national Michaelis, who is also a Singaporean PR, was previously the managing director and growth markets transformation lead for consumer industries at Accenture, as well as managing director of Accenture Digital. Before that, he held various leadership positions at management consulting firm McKinsey & Company, German media giant Bertelsmann and American Express.
Targeting tech companies
As a SPAC, FATP can pursue an acquisition of a business from any industry or geography. But the company intends to focus its acquisition search for a business that is driven by technology and operates in Southeast Asia.
Andrada says technology is a long-term trend, which he believes is a “permanent” driving force in many industries. This could be in the areas of supply chain, transportation, logistics, finance, sustainability, food, agriculture, e-commerce and big data. And because it is driven by technology, such a business can be scalable, he says. “We’ve seen that with Covid-19, technology has become the centrepiece in many economies,” he adds.
Michaelis says that the business should also possess other key elements. For one, the business should either be revenue generating or has a clear path to revenue generation. The business should also have a clear plan for growth, be it in product expansion or market expansion. In addition, the founders and management team should have a robust track record and capabilities.
Funding gap
Meanwhile, Andrada believes Southeast Asia is “underpenetrated” in terms of its representation of companies listed in the US. This is because Southeast Asia markets have traditionally been lumped together as part of the broader Asia market or shadowed by China, he says. As a result, there is a funding gap in the region.
“If we have a recipe of bringing in capital, and then deploying it to companies in the region, and then you really scale them, that’s going to be amazing,” he says.
Asked if there is a particular business size that FATP intends to focus on, Michaelis says the IPO proceeds of US$100 million should allow the company to acquire a business with an enterprise value of US$250 million. And if FATP launches a private investment in a public equity exercise, the company could stretch that to include a multibillion-dollar business, he adds.
Still, there are only a few notable names that could fit FATP’s criteria. Already, Grab — known for its ride hailing business — has agreed to be acquired by US-listed SPAC Altimeter Growth Corp in a US$40 billion deal touted to be the biggest in the world. Online real estate firm PropertyGuru is nearing a deal with Bridgetown 2 Holdings — another US-listed SPAC — that could be worth US$1.8 billion, according to Bloomberg.
Moreover, competition from Southeast Asia could stiffen ahead. Singaporean buyout firm Novo Tellus Capital Partners and Vertex Holdings, a unit of Temasek Holdings, are considering setting up their respective SPACs to list on SGX, according to Bloomberg. This is on top of some 200 odd US-listed SPACs scouring the world and vying with each other to acquire a business.
So, how would FATP distinguish itself?
Michaelis points to the diversity of the sponsor team members, as well as its board of directors. “Each of our SPAC sponsor team members has had significant exposure to the region, and have lived here before,” he says. “And that’s something that we bring to the table, where many people would say that is a very rare combination of regional experience and the [skill sets] that we have.”
