Today, we take a closer look at special purpose acquisition companies (SPACs) and why, after years in the wilderness, they’ve become more popular in recent years, attracting big-name investors.
Meanwhile, after its weeks-long fight with Twitter over the removal of certain accounts and tweets related to the farmers’ protest in Delhi, the government is planning to tweak its information technology rules to force social media platforms to take down ‘unlawful’ content within 36 hours. Under the current rules, Twitter and others have 72 hours to do so.
1. SPACs are back. But what are they?
Currently, one of the hottest trends among dealmakers in the Silicon Valley is the SPAC, short for Special Purpose Acquisition Company.
These investment vehicles, which have been around for decades in the West, have emerged as a popular alternative to the traditional IPO, or initial public offering, for several private startups. About 300 SPACs were seeking deals with about $ 90 billion in cash as of last month, with more vehicles popping up at a furious pace, according to the Wall Street Journal.
SPACs raised a record $ 82 billion through IPOs last year and have raised about $ 38.3 billion so far in 2021, as compared to $ 19.8 billion by traditional IPOs, according to data from Dealogic.
What is an SPAC? SPACs, sometimes called ‘blank cheque’ companies, are shell companies created with the sole intention of merging with a private business. These firms list on the stock exchanges without any real business and raise money from investors. They then typically buy private firms and help them go public quickly without the hassle of a traditional IPO. A SPAC has two years to find a company to acquire or it must return the funds to investors.
Pros: Raising money from a SPAC is easier than doing so through a traditional IPO since the SPAC has already raised money through an IPO. This means the company in question only has to negotiate with a single entity, as opposed to thousands of individual investors.
This also makes the process of fundraising a lot faster than through an IPO. And SPACs aren’t subject to shifts in the market like IPOs are.
Cons: It’s typically more expensive for a company to raise money through a SPAC than an IPO. And investors’ money, which could sit in a SPAC trust waiting for a suitable target for up to two years, could be put to better use elsewhere.
Chamath Palihapitiya, a former Facebook executive and founder of venture capital firm Social Capital, is widely considered to be the king of SPACs. He has sponsored six such companies, raised a total of $ 4.34 billion, and acquired businesses across several sectors including space travel, health insurance, financial services and real estate. Earlier this week, Palihapitiya’s SPAC group Social Capital Hedosophia filed for seven new SPACs.
SPACs and Indian firms
- In 2015, Videocon d2h was listed on the Nasdaq through a reverse merger with a blank-cheque vehicle Silver Eagle Acquisition Corp.
- In 2016, Yatra started trading on the Nasdaq after a $ 218 million reverse merger with Terrapin 3 Acquisition Corp, a US-based SPAC.
- SoftBank-backed online grocery Grofers is reportedly eyeing the SPAC route while former Star and Disney India chairman Uday Shankar and James Murdoch’s investment company Lupa Systems are weighing SPAC plans to acquire an Asian media firm.
2. Govt squeeze on social media
Social media platforms in India may soon be required to take down ‘unlawful’ content in 36 hours, as against the current 72 hours, on the request of the government or on court orders, The Times of India reported.
According to the proposed amendments to Information Technology (Intermediaries Guidelines) Rules, 2011, the government wants social media companies to act more quickly on requests to remove such content.
There’s more: The new rules may also make it compulsory for platforms with more than 50 lakh users in India to set up an office in the country and appoint a nodal officer to liaise with law-enforcement agencies. The amended rules also seek to deploy automated tools to proactively identify and remove unlawful content.
Why it matters: Earlier this month, when the government asked Twitter to suspend accounts that it claimed were behind the violence in Delhi on Republic Day, the company wrote in a blog post that it would not take action on “accounts that consist of news media entities, journalists, activists, and politicians. To do so, we believe, would violate their fundamental right to free expression under Indian law.”
Tweet of the Day
Old: developed world and developing worldNew: declining world and ascending world
— balajis.com (@balajis) 1613713818000
3. ETtech Deals Digest
This week in ETtech Deals Digest, India’s largest edtech startups continued to shop for smaller rivals, fintech startups bagged the biggest funding rounds, and a new fundraising route has opened for Indian startups.
Also, Tata Group has signed a $ 1.2 billion deal to buy BigBasket, which would see India’s largest online grocery list on the bourses in 24-36 months time.
Elon Musk has called Tesla’s Bitcoin bet an “adventurous enough” investment for the company. This came after Binance Holdings CEO Changpeng Zhao called out the world’s richest man for tweeting about Dogecoin, a cryptocurrency that literally began as a joke.
@business Tesla’s action is not directly reflective of my opinion. Having some Bitcoin, which is simply a less dumb… https://t.co/fTCzXHyyPK
— Elon Musk (@elonmusk) 1613703662000
The story so far: A growing number of Musk’s recent tweets have fuelled buying frenzies in stocks and cryptocurrencies. Earlier this month, Tesla acquired $ 1.5 billion worth of Bitcoin. The electric carmaker had said it expects to begin accepting Bitcoin as a form of payment for its products in the near future.
5. A $ 30-billion opportunity in 5G
Indian IT services firms are set to tap into a potential $ 30-billion global opportunity over the next five years as 5G rollouts begin globally.
Why it matters: Creating 5G solutions is expected to be the next big area for IT services firms after cloud computing, allowing them to expand the scope of work with existing clients and work with enterprises in industries that have traditionally not been big spenders on IT.