Last year was a record year for IPOs through Special Purpose Acquisition Companies (SPACs) in the United States, both in terms of volume and gross revenue. SPACs have represented an interesting growth model for startups over the last few years in the U.S., but there are only two in Mexico.
During 2021, according to Nasdaq figures, 613 SPACs were listed on the U.S. stock exchange and raised a total of $145 billion, which represented a 91% growth over 2020. SPAC Data data is even more optimistic, estimating the amount raised by such investment vehicles to be $161.234 billion.
This data shows that the use of this type of vehicle to reach the public market in the United States is a growing trend, as filing an initial public offering (IPO) with a SPAC is much faster for private companies than going down the traditional IPO route, and making it very attractive to investors who want a quick return on their investment.
SPACs make this possible through buyouts and mergers. In other words, through this investment vehicle a promoter agent carries out an IPO to raise capital, and with those resources goes on to buy companies.
“SPACs are like a kind of fund that attracts money from institutional investors, by using them an investor can raise a certain amount of money and list their fund on the stock exchange. Once the fund is listed, the money comes in and that fund is used to invest in a single company,” Guillermo Cruz, managing partner of Maquia Capital, a financial group specializing in alternative assets and investment funds that seeks the securitization of Mexican and Latin American companies, said in an interview with Bloomberg Línea.
Maquia Capital began working with such investment vehicles two years ago, and does so with U.S. funds such as BlackRock, Polar and Glazer, moving from venture capital to a more alternative theme.
The process SPACs follow to list on the stock exchange is sometimes referred to as a ‘backdoor IPO’, because the private company goes public without going through the normal IPO filing process, which would require greater transparency with respect to business operations and profitability.
Why Use SPACs?
Cruz saw an opportunity to venture into SPACs with his partner Jerónimo Peralta when the venture capital industry began seeing record investments three years ago. “We went ahead to think that the best exit for these startups was an IPO, but unfortunately there is not much liquidity in our local markets,” he says.
It was then that they looked for an instrument with which they could list companies in the United States and began to create their first SPAC, and in January 2021 took that first SPAC, Benessere Capital Acquisition, public, after having studied the option for seven months. They raised $115 million with that SPAC in the United States and teamed up with energy company eCombustible.
In May 2021, Cruz and Peralta launched a second SPAC, Maquia Capital SPAC, with which it raised $175 million, while their most recent SPAC is focused on agribusiness, and with which they raised $150 million.
Listing on the public markets allows a startup to have greater access to capital in order to expand its operations, increase its value, increase its liquidity in the short and long term, and improve its international projection, to mention a few advantages.
Why Are There So Few SPACs in Mexico?
While in the United States there is a boom of SPACs, in Mexico so far there have only been two that have debuted on the Mexican Stock Exchange (BMV): Vista Oil & Gas in 2017, and Promecap in 2018.
As Cruz explains, institutional investors fund a manager and the manager goes after the business. In the United States this vehicle has been interesting, because there is a large amount of institutional investment, he says
However, “in Mexico the institutional base is much smaller, most of the institutional investors are retirement funds (Afores) and they have a much more conservative profile than an institutional investor in the United States”, he says.
Added to this is the fact that in the Mexican market there is not enough liquidity because it is not common for people to have shares in the stock market or in any of the banks.
Cruz explains that, “if we had SPACs in Mexico we would have to make the pitch to the Afores, which are 16 investors, while in the United States we sign up 140 investors and of those 140, 25 say yes and with that we fill our cap table”.
According to the investor, SPACs can be a relatively aggressive business for this type of investor profile, because they are very short-term investments, of 18 months.
For his part, Peralta, managing partner of Maquia Capital Mexico, added that what also hinders the adoption of SPACs in Mexico is that Mexican companies are not as prepared to be listed on the stock exchange, in addition to the risk profile of institutional investors.
In addition, he says that in the United States a change in regulation was what led to the SPAC boom, while, unlike other jurisdictions, Mexico does not have specific regulations for all aspects concerning the public listing or management of such investment vehicles.
In order to adopt the use of SPACs for the securitization of a company in a more efficient way, Cruz says: “Let’s change a little bit that mentality that Mexican business leaders cannot go public in the United States or that we cannot raise money from there. We are perfectly up to the task”.
But Mexico and Latin America are not the only places in the world where SPACs have not penetrated. In Europe, the trend has not yet taken hold either, with only three such IPOs taking place in 2020.