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A Quick Take On Alset Capital Acquisition
Alset Capital Acquisition Corp. (NASDAQ:ACAX) has raised $86.25 million from an IPO at a price of $10.00 per unit, according to the terms of its most recent S-1 regulatory filing.
The SPAC (Special Purpose Acquisition Company) intends to pursue a merger with a company in the sectors of real estate or ‘Proptech’ industries with their primary business operations outside of China.
Management doesn’t have an operating track record or previous experience with SPACs, so I’m on Hold on ACAX.
Alset’s Sponsor Background
Alset has 2 executives leading its sponsor, Alset Acquisition Sponsor, LLC.
The sponsor is headed by:
– Chairman and CEO Heng Fai Ambrose Chan, who has extensive experience restructuring companies as CEO of Alset International Limited, an investment holding company.
– Chief Financial Officer Rongguo Wei, who is co-Chief CFO of Alset EHome International and has more than 15 years of experience with private and public companies in the United States.
The SPAC is the first vehicle by this executive group.
Alset’s Market
According to a 2018 market research report by Forbes, the global market for Proptech companies in 2017 was estimated at $12 billion.
In 2018, another $4 billion was invested in real estate technology companies.
The main drivers for this expected growth are an increase in desire by property owners to make their properties more desirable to tenants, increasing rent rates and future values accordingly.
Also, in 2021, the real estate services firm estimated there were more than 6,000 Proptech or other real estate technology-related businesses worldwide.
Alset’s SPAC IPO Terms
Bethesda, Maryland-based Alset sold 8.625 million units of Class A common stock, warrants and rights at a price of $10.00 per unit for gross proceeds of approximately $86.25 million, not including the sale of customary underwriter options.
The IPO also provided for one-half of one (and 1/10th of one right) warrant per share, exercisable at $11.50 per share on the later of: (i) the completion of an initial business combination and (ii) one (1) year from the date of the prospectus, and expiring 5 years after completion of the initial business combination or earlier upon redemption or liquidation.
The SPAC has 15 months to complete a merger (initial business combination). If it fails to do so, shareholders will be able to redeem their shares/units for the remaining proceeds from the IPO held in trust.
Stock trading symbols include:
Founder shares are 20% of the total shares and consist of Class B shares.
The SPAC sponsor also purchased 440,000 units at $10.00 per unit in a private placement.
Conditions to the SPAC completing an initial business combination include a requirement to purchase one or more businesses equal to 80% of the net assets of the SPAC and a majority of voting interests voting for the proposed combination.
The SPAC may issue additional stock/units to effect a contemplated merger. If it does, then the Class B shares would be increased to retain the sponsor’s 20% equity ownership position.
Commentary About Alset
The SPAC is interesting because it is pursuing a merger in the real estate/proptech industries, with a likely focus on Asia ex-China.
The lead executives of the SPAC have no obvious prior operating experience in real estate or proptech companies.
Also, they have no prior SPAC experience, so their lack of a successful track record in these regards is notable.
Investing in a SPAC before a proposed business combination is announced is essentially investing in the senior executives of the SPAC, their ability to create value and their previous SPAC track record of returns to shareholders.
So, in a sense, investing in a SPAC can be likened to investing in a venture capital firm as a limited partner.
The cost of that investment is roughly the same, 20% of the upside to the SPAC sponsor, but the time frame for realizing a significant gain can be far faster, a 1- to 3-year time period for a SPAC versus 10 or more years for a typical venture capital fund.
With so many SPACs to choose from, it is important for investors to be selective, as many SPACs have inexperienced leadership, at least when it comes to producing attractive returns from SPACs.
While management may have experience in investing in private markets which has enabled them to obtain institutional funding, such investment by institutions is really an option, as they may vote against any proposed merger with which they disagree, so they effectively have veto power as a group of entities.
Retail investors are really just ‘along for the ride,’ with little influence on the ultimate outcome of a proposed merger.
In any event, while management may find an interesting merger target, the chances of success are difficult to determine.
I’m on Hold on the Alset SPAC.
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