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US Spac boom lures UK tech companies in blow to London

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Some of Britain’s most promising tech businesses are considering stock market listings in the US, amplifying the pressure on the UK to change listing rules at a time when ministers are keen to show an ambitious strategy for the City after Brexit.

UK tech businesses, including used car site Cazoo and health app Babylon, are discussing potential mergers with US special purpose acquisition companies, according to people familiar with the talks.

Other so-called Spacs, blank-cheque vehicles that hunt for companies to buy and bring public, have also approached Darktrace, these people said, although the cyber security company is more likely to opt for a straight UK listing. The companies declined to comment. 

The flurry of interest, which comes after UK electric vehicle company Arrival listed in the US through this channel last year, highlights the prickly environment in the UK for Spacs, which are proliferating rapidly on the other side of the Atlantic. Bankers and lawyers are lobbying for a swift change in UK rules.

“The appeal of doing a Spac is severely limited in the UK,” said Jason Manketo, capital markets partner at Linklaters. Current regulation makes London “less competitive particularly for tech IPOs and founder-led IPOs compared to the US”.

Bar chart of amount raised ($bn) showing US Spac frenzy overwhelmingly dominates that of the UK

The US Spac craze has become the dominant equity capital markets trend, with more than 173 vehicles raising $55.2bn so far this year, according to Refinitiv data.

Some UK and European companies are fielding a “frenzy” of offers, according to their executives and investors, as US sponsors look to deploy capital before the two-year deadline to complete a merger expires. 

In Europe, mobility start-ups Tier and Voi, best known for their fleets of rented electric scooters, have also been approached. Voi and other European start-ups are fielding “a lot” of interest, said Fredrik Hjelm, chief executive of Sweden-based Voi. While he said it was “too early” for Voi to go public, like many of his peers Hjelm is maintaining an open dialogue with a small number of Spac sponsors “to understand it and take a stance on how, when and if”. 

LVMH founder Bernard Arnault and former UniCredit chief Jean Pierre Mustier earlier this month announced plans for a European Spac listed in Amsterdam to snap up financial companies in the region.

In the UK, though, the key hurdle is a rule requiring a Spac’s shares to be suspended once a target is chosen. Share trading cannot resume until a deal prospectus is published. That means Spac shareholders who dislike the target and want to sell can find themselves locked in. Only one Spac has chosen London since the start of 2020.

Bar chart of amount raised ($bn) showing European sponsors are increasingly listing Spacs abroad

Former EU commissioner Jonathan Hill has been urged to make London more Spac-friendly under his review of UK listing regulations that is due for release before the budget on March 3, according to people familiar with the matter.

Xavier Rolet, former head of the London Stock Exchange Group, this week said the UK should strive to become a centre for Spac activity in the wake of Brexit.

Bankers and lawyers say removing the suspension rule would encourage UK businesses to list at home and place London on the same footing as Amsterdam, which has emerged as Europe’s Spac hub.

“If the Hill review and [the UK regulator] gave their blessing around the stock suspension point, I feel the UK Spac market would open up rapidly,” said Paddy Evans, head of UK equity capital markets at Citigroup. “If I can convince you that the UK market is going to value [the company] in the same way, a UK tech champion would and should list at home,” he added.

Some UK investors are wary of Spacs because of several high-profile historical failures. Nat Rothschild, a member of the eponymous banking family, raised a £700m Spac in 2010 and merged with Indonesian mining company Bumi which was later fined by regulators for breaching listing rules. In 2015, Gloo Networks raised £30m but never made a deal.

But, today, Spac sponsors include some of Silicon Valley’s most prominent founders and investors. “People confuse how Spacs were viewed 18 months ago with how they are today — which is they are pretty viable alternatives,” said one UK tech executive who is weighing several offers. “They have created a ready-made path for people who want to IPO, with ready-made capital.”

UK investors have traditionally been considered more conservative than their US counterparts and less supportive of lucrative “promotes” for sponsors, which typically hand them 20 per cent of the Spac’s equity for $25,000.

Given the reputational baggage attached, many European venture capitalists remain wary of encouraging their companies to pursue a Spac, with one saying it was for “good companies” but not the “best companies”. “It’s a highly efficient structure, but I think it’s still a bit like settling for a .net domain,” he said, rather than a classic .com. 

However, UK sponsors could integrate several rules popular in the US, such as allowing shareholders to vote on the chosen acquisition and to redeem their shares if they dislike the target. Those urging the Hill review for change argue that attracting Spacs will not erode London’s reputation for upholding a gold standard of investor protections.

“They’re being lobbied quite hard,” said a senior banker. “The environment is perfect for Spacs and people can’t wait.”



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Ari Emanuel’s Endeavor shoots for $10bn valuation in IPO

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Endeavor, the entertainment group founded by Hollywood power broker Ari Emanuel, is aiming for a valuation of more than $10bn in an upcoming initial public offering, well above the $8bn valuation it sought in an abortive attempt at a flotation in 2019.

Its emboldened aspirations come in defiance of a coronavirus pandemic that has wiped nearly one-quarter off the media group’s annual revenues and saddled it with large one-off costs as it fired workers and wrote down the value of impaired assets.

Endeavor is hoping to raise as much as $1.8bn in the IPO and a simultaneous private placement of shares. It said on Tuesday it would raise $1.3bn from private investors including Abu Dhabi’s Mubadala and Robert Kraft, the owner of the New England Patriots, with the remaining $500m coming from stock market investors.

Among the other backers of the private transaction are wealthy individuals such as the computer entrepreneur Michael Dell, hedge funds including Third Point and Elliott Management, and the venture capital firm Silver Lake, which has been among Endeavor’s biggest backers since 2012.

Emanuel founded Endeavor in 1995 as a talent agency, and has since acquired companies focusing on sports, concerts and live events including the Miss Universe beauty pageant.

Endeavor plans to take full ownership of Ultimate Fighting Championship alongside the IPO. It will buy the 49.9 per cent of the mixed martial arts franchise that it does not already own, using cash and Endeavor shares.

KKR, the private equity firm that bought a large chunk of UFC in 2016, will then sell Endeavor shares worth $437m to the same group of investors participating in the private placement.

Endeavor previously announced plans to go public in 2019, when it intended to raise as much as $712m, before abandoning the plans on limited investor demand.

The IPO has been structured using an umbrella partnership corporation, or “up-C”, to offer tax advantages to executives and early backers like Silver Lake.

Investors in the IPO will purchase a stake in the public holding company, which in turn will own part of an underlying limited liability company. Executives and early backers will continue to hold some of their economic interests directly in that limited liability company.

The structure could enable those insiders to payouts of as much as $2.3bn over 15 years, according to the prospectus filed with the Securities and Exchange Commission.



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Oatly’s US IPO prospectus highlights risks to its Chinese backer

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Oatly, the Blackstone-backed vegan milk company which on Monday filed to float on Nasdaq, said it would consider adding a listing in Hong Kong within the next two years, citing its relationship with a Chinese state-owned conglomerate.

China Resources owns more than 60 per cent of the Swedish group through a joint venture with the Belgian family investment group Verlinvest and has helped the company to dramatically expand its presence in China in recent years.

In a prospectus for its Nasdaq share offering, Oatly said it could seek a second listing in Hong Kong if its status as a US public company had a “material adverse effect” on its leading shareholders.

Explaining why it had agreed the provision, Oatly cited the possibility that the US government could make it hard for the group to share information with a state-owned company and might prevent China Resources from placing its representatives on the Oatly board, or even force it to divest.

The company also said it could pursue a Hong Kong listing if it generated more than 25 per cent of its revenue from sales in the Asia-Pacific region for two consecutive fiscal quarters.

The prospectus detailed how Oatly has been able to rapidly expand its presence outside Europe, with Asia and the Americas contributing a combined $150m, or 36 per cent of total revenues, last year compared to $50m, or 24 per cent, in 2019.

Oatly’s products are now sold at more than 9,500 shops in China, three years after launching in the country. In the US, Oatly products can be found at 7,500 retailers and in more than 10,000 coffee shops.

The relationship with China Resources attracted controversy when the group invested in Oatly with Verlinvest in 2016, prompting Swedish media to highlight China’s environmental and human rights record.

“It’s difficult to have a large float without Chinese investors being involved these days,” said one small Oatly shareholder from a venture capital firm.

Malmo-based Oatly has grown on the back of the popularity of plant-based milk alternatives across the globe and is pushing for a $10bn valuation from the Nasdaq float, according to people familiar with its plans.

An investment round last year led by Blackstone valued the oat milk maker at $2bn. Oatly’s other investors include television host Oprah Winfrey and rapper Jay-Z’s Roc Nation.

The prospectus confirmed earlier revenue estimates of more than $400m in 2020 — $421m to be precise, up from $204m in 2019 — though losses widened from $35.6m to $60.4m.

International expansion has focused on the specialty coffee market, with its “barista” milk which froths like cow’s milk. Oatly has also expanded into making and selling plant-based ice cream and yoghurt, although its oat milk made up 90 per cent of revenue last year.

The company said it was planning to raise $100m in its initial public offering, a place holder number that is likely to change. Morgan Stanley, JPMorgan and Credit Suisse are leading the offering.



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Grab co-founder set to dramatically increase voting rights with Nasdaq listing

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Malaysian internet entrepreneur Anthony Tan is set to dramatically increase his control over his company Grab when the south-east Asian tech group joins Nasdaq later this year.

In a move that would be the envy of his Silicon Valley peers, the Grab chief executive and co-founder will have 60.4 per cent of the voting power in the company while owning a stake of just 2.2 per cent.

This is a feat comparable to that of Facebook’s Mark Zuckerberg and unprecedented for a deal involving a special purpose acquisition company.

The holdings were contained in papers filed last week after the Singapore-based company unveiled a record deal to combine with a New York-listed Spac launched by Altimeter, a Silicon Valley group, valuing the business at almost $40bn.

The filing also revealed that the company, whose superapp offers everything from ride-hailing to deliveries and financial services, has reported potential violations of anti-corruption laws to the US Department of Justice.

Proponents say Tan needs the control to make quick and difficult decisions in navigating Grab’s eight markets. The deal is a crucial test of international investor appetite for a tech company with operations sprawled across the vastly diverse and emerging region of south-east Asia.

Bar chart of % of voting power showing  Anthony Tan will have majority voting control at Grab

But his grip on the SoftBank-backed company’s direction marks the first time a Spac deal has entrenched a founder’s voting rights to this degree, say experts.

Such an overriding majority voting right for a chief executive is “unprecedented” for a company seeking a Spac route, said Robson Lee, a partner at law firm Gibson Dunn. “While it is not unusual for high tech companies seeking a listing to entrench management shares with additional voting rights, a 60 per cent absolute majority will be the first in the market,” Lee said.

Others put it more bluntly.

“By bypassing a traditional IPO, Grab has attracted less scrutiny over Anthony’s control,” said one investment banker with direct knowledge of the deal.

While common in the tech space, such arrangements are not always popular, as evidenced by the backlash against Adam Neumann, WeWork’s messianic co-founder, and shareholder protests faced by Zuckerberg, who holds about 60 per cent of the voting power at Facebook.

Details of Tan’s control did not surprise Grab’s rival, Indonesia-based super app Gojek. Merger talks between the two companies were abandoned late last year before Grab began considering a Spac merger, and people close to the talks said Tan had demanded control indefinitely as a “CEO for life”. Grab has denied the reports.

One long-term Grab investor said that Tan, who comes from one of Malaysia’s wealthiest families, “needs a high level of power” to negotiate a seat at the table at the region’s messily interlinked world of family-run conglomerates, politics and regulation.

“The issue is south-east Asia in itself is not a homogeneous market . . . It’s a collection of different markets with their own sets of regulatory considerations,” said Lawrence Loh, director of the Centre for Governance and Sustainability at the National University of Singapore.

In its filing, Grab outlined several risks including an investigation it launched into potential violations of anti-corruption laws related to its operations in one country. The company reported the potential violations to the DoJ but declined to comment on them when contacted by the Financial Times.

The onus is on Grab and Tan to justify the dichotomy between ownership and voting shares and prove it is in the interest of the shareholders, said Nirgunan Tiruchelvam, head of consumer sector equity research at Tellimer Group.

“If he can argue that such a disproportionate share of voting would be beneficial to shareholders and add value for further direction of the company, then it’s possible shareholders would be comfortable with it.”

But even key shareholders have had their voting power diluted via the dual-class share structure — similar to Facebook. SoftBank, Grab’s biggest shareholder, has an 18.6 per cent stake that will translate to just 7.6 per cent voting power. Uber’s 14.3 per cent stake has a 5.8 per cent voting power and Didi Chuxing’s 7.5 per cent stake, just 3.1 per cent.

“For now we are just happy with the liquidity, but longer-term we want to see genuine progress towards profitability,” said one investor.

That is still years away. Grab has lost money every year since its inception in 2012 as it has grappled with other well-financed competitors. Accumulated losses hit $10bn at the end of 2020. Last year it reported a net loss of $2.7bn against net revenues of $1.6bn and it does not expect to break even until 2023.

Column chart of Net losses ($bn) showing Grab as a whole is still not profitable

On top of that, Grab has not said if it will appoint any independent board directors, nor does its filing say what checks and balances are placed on Tan. Information on succession or who inherits Tan’s stock has not been released.

“Further details will be in the F-4 registration statement that will be filed with the SEC [the US Securities and Exchange Commission], and to comply with this regulatory process, we will not be able to share more until the F-4 is finalised,” Grab said in a statement.

Jeffrey Seah, a partner at Singapore-based venture capital firm Quest Ventures, said: “While he has supervoting rights, he has kept his management team intact. That is a [type of] check and balance.”

But even the supervoting shares held by Grab’s co-founder Tan Hooi Ling and president Ming Maa will be beneficially owned by Tan under a deed that will be entered at the time of the merger.

So far, Grab’s big-name investors seem happy to back Tan. Funds investing in the deal include BlackRock, T Rowe Price, Fidelity, Janus Henderson, Abu Dhabi’s Mubadala, Singapore’s Temasek, Malaysian fund Permodalan Nasional Berhad as well as a number of wealthy Indonesian family offices.

The test will come when Grab joins the Nasdaq, said Loh. The deal has been approved by both Grab and Altimeter Growth boards, and it could close by July.

“The moment of truth will be when we discover the listing price and when it’s actually traded . . . If there are concerns, all investors will probably give it a discount,” he added.

mercedes.ruehl@ft.com and stefania.palma@ft.com



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