us-listed spacs have a new target: latin american tech companies
A Surge in Tech IPOs Transforms the Brazilian Stock Exchange
An unprecedented boom in initial public offerings (IPOs) of technology firms is currently reshaping the Brazilian stock exchange. This represents a significant shift for a market historically characterized by dominance from sectors like utilities, mining, oil, and financial services.
Recent IPO Activity and Investor Demand
This upward trend remains robust. February alone witnessed public listings from growth-oriented companies including Bemobi, Westwing, Mobly, and Mosaico. Notably, Mosaico experienced a 20x oversubscription and a 70% increase in share price on its debut trading day.
Similar positive performance has been observed with companies such as Meliuz, Enjoei, and Neogrid, which have seen gains of 173%, 53%, and 74% respectively, since their listings a few months prior.
The Rise of SPACs Targeting Latin American Growth
Perhaps even more noteworthy is the emergence of new special purpose acquisition companies (SPACs). These entities are currently raising capital on the Nasdaq exchange with the specific intention of acquiring private growth companies located throughout Latin America – a scenario that would have been improbable just a year ago.
Increased Competition in the SPAC Market
The landscape for SPAC mergers in the U.S. has become increasingly competitive. Approximately 300 SPACs, having collectively raised over $90 billion, are actively seeking suitable acquisition targets before established deadlines.
Consequently, SPACs with broader global mandates are now more frequently pursuing acquisitions of foreign growth companies. This strategy allows them to benefit from potentially more favorable valuation multiples.
Asian and Brazilian SPAC Activity
In 2021, eight Asian-sponsored SPACs successfully raised over $2.3 billion on the Nasdaq/New York Stock Exchange, exceeding the total volume from 2020. More recently, activity appears to be gaining momentum in Brazil, with $1.1 billion in Brazil-focused SPACs being established.
Navigating Regulatory Restrictions
Unlike many Asian nations, Brazil prohibits “blank check” companies due to requirements for a minimum of three years of audited financial statements for IPO eligibility. In response, Brazilian sponsors have begun raising capital through SPACs listed on Nasdaq, intending to take Brazilian growth companies public – ultimately resulting in U.S. trading.
Brazilian-Sponsored SPACs to Date
To date, three IPOs have been launched by Brazilian-sponsored SPACs. HPX debuted in June 2020, with two further launches occurring in February. Alpha Capital was the most recent, raising $230 million on February 23rd.
Prior to that, Itiquira Acquisition Corp secured $200 million in early February, experiencing a 10x oversubscription. Collectively, these three SPACs have raised $650 million with a mandate to invest in Brazilian growth companies.
Future SPACs in the Pipeline
Additional SPACs are currently in development, including Softbank’s LDH Growth Corp I, aiming to raise $200 million for a Latin American growth company acquisition. Dynamo has also announced plans to raise up to $400 million through Waldencast Acquisition Corp.
Potential Market Impact
These SPACs collectively aim to raise at least $1.1 billion, potentially bringing at least $3 billion in market capitalization of Brazilian/Latin American growth companies to the U.S. market.
The potential impact on both the American and Latin American stock markets is considerable. Historically, emerging market public companies have largely consisted of traditional, value-oriented businesses in sectors like utilities, heavy industry, finance, and energy.
Shifting Dynamics and Potential Consequences
The surge in growth company IPOs in Brazil has initiated a transformative shift in the local stock market. However, local sponsors are now raising capital in the U.S. to list businesses on a market that typically assigns higher multiples to growth stocks, rather than developing the domestic market.
This trend could have a dual effect. The U.S. market may become more diverse and globally inclusive as sponsors from emerging markets utilize U.S. SPACs to list domestic companies.
Conversely, if successful, this trend could lead to stagnation and a lack of innovation in emerging market stock exchanges. The U.S. could become the primary listing destination for tech companies worldwide, increasing stock market concentration and inequality.
Early Stages and Potential Risks
Currently, only a limited number of SPACs are focused on Latin American companies, and none have yet completed an acquisition. The process is still in its initial phases, making it difficult to predict the full impact of the U.S. SPAC boom on emerging markets.
Potential threats to this trend include unsuccessful SPAC mergers, decreased demand for private investment in public equity, rising interest rates, and potential disruptions in U.S. equity capital markets. Despite these risks, the recent developments are remarkable and warrant close observation.
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