- XPAC said it is interested in companies in the healthcare, financial services, consumer and retail, technology, and education sectors;
- The SPAC provides private businesses a path to enter the public stock market more quickly than an IPO process.
Brazil‘s broker XP announced on Thursday that it raised its first SPAC on Nasdaq, the $200 million XPAC Acquisition Corp. Now, XP’s SPAC begins its hunt for a Brazilian target firm to merge and make it a publicly-traded company.
XP’s SPAC IPO comes at a time when the U.S. market for SPACs slowed its pace. Investor enthusiasm for SPACs may have waned with the SEC’s increased scrutiny of transactions after the recent poor performance of shares in some vehicles in the U.S. market. Bank of America (BofA) data shows that in the first quarter of 2021, there were 296 SPAC transactions — more than the 248 deals in all of 2020 — but far fewer than the 10 SPAC transactions in the second quarter (up to late April).
XPAC said it is interested in companies in the healthcare, financial services, consumer and retail, technology, and education sectors.
Managed by XP’s private equity team, XPAC’s sponsors are Chu Kong, Guilherme Teixeira and Fabio Kann. Chu Kong was the first private equity investor to invest in XP, in 2010, as co-head of the British fund Actis.
Italian professor Daniele D’Alvia is CEO and founder of SPACs Consultancy. He told LABS that he considers the $42 million’s merger of Colombian SPAC Andina Acquisition Corp. I with Tecnoglass in 2013 as the first case of a technology SPAC in Latin America. Today, Tecnoglass is listed on Nasdaq, with the share’s value at $19.
The hunt for the next company that will go public through a SPAC has already begun. XPAC now joins four newly launched vehicles: Alpha Capital, Valor Latitude, SoftBank, and DILA Capital – the latter of which focuses on Hispanic Latin American companies.
According to D’Alvia, Latin American technology companies look to the New York stock market to “attract prestige” and access more liquidity, as well as relying more on an already consolidated SPAC process in the United States.
“In less than 15 months we have evaluated more than 500 investment opportunities through the private equity fund, of various sizes, profiles, and stages of maturity. XPAC will now look at larger and more mature companies, at an appropriate stage for a listing in the international capital markets,” said Guilherme Teixeira.
According to Chu Kong, XPAC should benefit from the business origination capacity from the XP Group. XPAC will not compete with the private equity fund, since the fund invests in medium-sized companies at an earlier stage of development.
“We are confident that this will be just the first in a series of XP SPACs. This is the beginning of the journey to position ourselves as the largest and best sponsor of SPACs in Latin America. The listing of XP Inc. on Nasdaq brought us deep knowledge of the global capital markets and the demand for Latin American companies. We know what companies need and the challenges to also become a listed company in the international market”, says Thiago Maffra, CEO of XP.
The XPAC Board is composed of: Chu Kong, Ana Cabral Gardner, former head of capital markets LatAm at Goldman Sachs and currently Co-Chairman and CSO at Sigma Lithium, Camilo Tedde, CEO at GSK Consumer Healthcare, Denis Pedreira, head of the LatAm division at Naspers and Marcos Peixoto, managing partner at XP Asset. “Our biggest concern in the composition of the board was to bring names with experience in the Brazilian market and especially with complementarity and diversity of competencies”, explained Fabio Kann.
Citigroup was the exclusive underwriter and XP Investimentos was the financial advisor for the offering.
What is a SPAC?
The SPAC, also called a “blank check company,” provides private businesses a path to enter the public stock market more quickly than an IPO process — it takes a few months, while an IPO can take more than a year — by using mergers and acquisitions (M&A) regulatory arbitrage, which is simpler than the rules for listing a company on the stock exchange. In other words, you trade one set of regulations for another.
Generally, SPACs are managed by corporate leaders, successful entrepreneurs, and well-known investors who create a company without any actual operations. These managers (also called sponsors) take the SPAC to the market through a regular IPO in a process coordinated by investment banks. This process, as a whole, is easier since the company does not have a history to audit. It was born with a single purpose: to merge with another company.
Investors, generally unfamiliar with LatAm startups, believe in the sponsor’s experience to filter the prospective companies and make a good deal. Investors buy SPAC shares, traditionally for $10, despite not knowing with which company the SPAC will ultimately merge.
After the IPO, the SPAC starts looking for a target company that wants to go public. Under the regulation, the vehicle can extend its deadline but, generally, the SPAC has two years to find a company and make a deal.
If that doesn’t happen, the money goes back to the investors and the SPAC dissolves. But if the SPAC merges with a company that wants to go public, that target company gets its spot on the stock exchange and the SPAC ticker turns into the target company’s name.
Since SPAC follows the M&A rule, it can only merge with a single company. After the transaction, investors in the blank-check firm receive shares in the newly listed company and SPACs managers usually get 20% of the shares. To take other companies to the public market, managers can create other SPACs vehicles, numbers II, or III, for instance.
Recall the latest tech and growth-oriented Latin American SPACs, according to LABS and Daniele D’Alvia’s knowledge:
- XPAC – $200 million on Nasdaq
- Alpha Capital Acquisition – $200 million on Nasdaq
- Excelsa Acquisition Corp – $200 million on NYSE
- DILA Capital Acquisition – $50 million on Nasdaq
- Valor Latitude – $200 million on Nasdaq
- SoftBank’s LDH Growth I – $200 million on Nasdaq
- Andina Acquisition Corp I – $42 million on Nasdaq, signed in 2013 a merger with Tecnoglass