SPAC attacks on firms rising

MUMBAI: Can an unknown company, with no proven track record, come and acquire your firm tomorrow? Yes it can, believes Deepak Parekh, chairman of Housing Development and Finance Corporation (HDFC).

In fact, such companies have already made a couple of acquisitions in the country, one of which was worth over $110 million.

A Delhi-based broking firm and a hotel firm called Mars Restaurant were the targets, with the Mars Restaurant deal with Indian Hospitality Corporation completed as recently as June end.

These are special purpose acquisition companies (SPACs) - blank cheque firms that raise money through public offerings with an objective of acquiring small and medium sized firms.

Addressing the CII Summit on ‘London Listing - Special Emphasis on AIM’, Parekh said, “There are close to 10 India-dedicated SPACs, which have raised funds ranging between $350 million and $500 million each, and are now on the prowl to acquire Indian companies. The SPACs are listed either in the US or UK, he added.

Interestingly, though, the target companies aren’t complaining. “It is the privilege of having an internationally-listed company as investor or acquirer that is suppressing even the smallest revolt against an unknown buyer,” said a merchant banker, requesting anonymity.

He warned, though, that “conventional investment wisdom or perhaps even a pea-sized brain would tell us that you do not hand over millions of dollars to a group of a publicly listed company that does nothing, has no firm business strategy and may not have any asset.”

All the same, returns in excess of 40% generated by SPACs have been attracting a lot of investors.

“But, how long can returns as high as 40% last?” asks Parekh. “There is also a set timeframe within which the SPAC has to acquire a company, or else the money has to be returned to the investors…

We must caution against reaching a pump-and-dump kind of a situation, which can undo all the good investor sentiment that has so painstakingly been built up in India.”

According to him, a revival or a new platform such as the Over the Counter Exchange, albeit sans the mistakes committed in the past, would ensure that small companies do not accept funding from the SPACs.