It is a blank cheque that is listed on the stock market. It later merges with the target. Grab, a company that we use daily in Singapore, was the largest spac listing in history.
This year has seen 44 spac IPOs with total proceeds of US$9 billion ($11.6 billion). There were only 52 spacs in the whole of last year. The proceeds raised this year have already matched 2024 levels. There are another 120 spac IPOs on the cards this year.
This spac boom may be different from the last. There are lessons for investors from Chamath Palihapitiya, the patron saint of spacs.
Though spacs have been around since the 1990s, it was Chamath who put them on the map. He is now 48 years old, but adversity came to him early.
See also: Hong Kong's first de-spac listing still leaves sector in limbo
Chamath, the son of Sri Lankan immigrants to Canada, had a tough childhood. His family moved to Ottawa when he was six. His father was a minor official in the high commission in Ottawa.
The old man lost his job. It led him to a spiral of alcoholism and depression. The family relied on food stamps.
The family had only one winter coat, according to a source. Canada’s winters are so severe that the saliva freezes. Only one member of the family could leave the house.
See also: Singapore-based Synagistics begins trading as Hong Kong’s first de-spac
The family appears to have restricted excursions. The trips to the grocer or to school were managed. They managed with just one coat, but rationed their trips.
Chamath had a gift for numbers, though. This was his ticket to success. He got a degree in electrical engineering at one of Canada’s top tech universities. He graduated in 1998. The timing was excellent. It was just when the dot.com boom was taking off.
He landed in Silicon Valley and eventually got a job at Facebook. Facebook has not only connected people but also created a fortune for its founders. Chamath’s Facebook stake was worth US$150 million in 2012.
His childhood hardship and sudden success in his 20s have been instructive. He has oak-like determination. This had made him a media sensation. His followers on X amount to nearly 2 million.
The Chamath posts are blunt and bombastic. In 2020, he invested in Metromile, a car insurance company. Chamath said that he was “the next Warren Buffett (but cooler)”.
Chamath sees spacs as a means of levelling the playing field. In the two years prior to 2021, he launched more than six spacs with a total proceeds of US$4.8 billion. Spacs all but vanished in 2023 and 2024. The brutal bear market and tighter SEC scrutiny took their toll.
The second coming of spacs presents an opportunity. The new blank check companies could invest in the broken de-spacs. The post-2022 collapse has created a vast array of de-spac companies trading at a deep discount to their net cash or their fair value.
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MoneyHero is Asean’s leading financial comparison app with 10 million users. It is the main port of call for people to get deals on credit cards, loans and insurance. The backers are the Li family and Peter Thiel. It listed in November 2023 on Nasdaq with net proceeds of US$76 million. The company has lost 93% of its value.
At US$31 million, it is trading at about 75% of its net cash. This seems unwarranted, as the company appears to have reduced its cash burn. The market expects it to be ebitda positive from FY2026.
There are other de-spac opportunities. DigiAsia was listed in April 2024 on Nasdaq through a de-spac. The company has billed the Stripe of Asean, as it operates fintech in Indonesia. In September, Paymate, an Indian payments giant with US$5 billion in payments volume, offered to buy it for US$400 million. The stock is languishing with a market cap of US$17 million.
Liminatus Pharma, a cancer research company, listed on Nasdaq through a de-spac. It lost 40% of its value, underperforming its peers.
Investors may have to replicate Chamath’s family frugal ways. They survived with one coat. The new spac boom needs to focus on the deep value from the last one, without buying designer items.
Nirgunan Tiruchelvam is head of consumer and internet at Aletheia Capital and author of Investing in the Covid Era
