Indian SPACs to raise nearly $1 billion through IPOs in US stock market

To acquire domestic media, tech, and consumer goods firms

What is common between film star Ajay Devgn, Managing Director of Manipal Group, Gautham Pai, founder of venture capital (VC) fund Elevation Capital, Ravi Adusumalli, and Paytm Founder, Vijay Shekhar Sharma?

They are all involved in either floating, investing or supporting blank-check companies, which are also known as special purpose acquisition companies (SPACs) — the hottest new vehicle for Indian start-ups for quickly hitting the initial public offering (IPO) market in the US.

At least four SPACs set up by Indian sponsors and their global partners are raising close to $1 billion through IPOs in the US stock market in the next few months. And they are focusing on domestic companies in areas such as media and entertainment, technology (tech), and consumer goods, apart from other markets in Asia.

For the uninitiated, a SPAC is a company with no commercial operation and is formed only to raise capital through an IPO for the purpose of acquiring a target company. Rather than go for a traditional IPO, many Indian tech and new-age start-ups that are yet to see profits have been looking at this route to get an easier and quicker listing. 

Two SPACs are being set up with the target area of media and entertainment.

Last week, the International Media Acquisition Corp (IMAC), a SPAC floated by Shibasish Sarkar, group chief executive officer (CEO) of Reliance Entertainment, refiled a prospectus with the US Securities and Exchange Commission to raise $230 million (including a greenshoe option) through an IPO.

The sponsor group has already committed to buy shares worth $7.1-7.96 million and is backed by a clutch of investors, including well-known names like Devgn, film director-producers Mani Ratnam, Rohit Shetty, and Imtiaz Ali, as well as record label and film production company T-Series, India’s first regional film studio Mumbai Movie Studios, and production house Annapurna Studios, among others.  

The SPAC is mostly targeting Indian companies with an enterprise value (EV) of $150-500 million and has identified four key areas — television and digital content, gaming, exhibition business, and over-the-top distribution.

Sources say the company, which will soon go for roadshows, expects to woo investors in the US, Canada, and Europe, apart from high networth individuals in Southeast Asian markets like Singapore. The plan is to approach a substantial number of the top 80 private equity firms based in the US and Canada. It is also looking at combining two or three companies into one entity and then merging with the SPAC (as it might not be easy to find a single company in India with an EV of $500 million). Under SPAC rules, 80 per cent of the capital assets have to be put into one combination.

According to sources, IMAC will be looking at mature companies which have revenue growth and decent cash flows. This is because many SPACs with ambitious plans that got listed in the past few months are trading below their listed price and may take years to turn profitable.

Seven Islands Inc is the other SPAC in a similar space and is being set up by former Star India CEO Uday Shankar and media mogul Rupert Murdoch’s son, James Murdoch, with the aim of raising a maximum of $345 million.

The blank-check company has a broad target area, which, apart from media and entertainment, also includes consumer technology, health care and education, and will be looking at companies in South and Southeast Asia, with a focus on India. 

The company has pointed out in its filings that it will look for firms with a strong brand, and those that are likely industry consolidators and have the potential to generate significant free cash flows.

In the consumer space, Pai and his partners have already listed their SPAC, Global Consumer Acquisition Corp, and raised $170 million. However, the company’s shares are currently trading at a discount. In its prospectus, the blank-check company has said it would look for target companies with a market capitalisation of $500 million to $1 billion, with a special focus on companies in the Asia Pacific, where India and China are expected to have the fastest growth in the consumer space. 

There is a SPAC for Indian tech companies, too. VC firms Elevation Capital and Think Investments have together launched a blank-check company called Think Elevation Capital Growth Opportunities, which has filed for raising $225 million to help Indian tech companies list in the US. The company has roped in Vijay Shekhar Sharma as a board member. Elevation Capital was one of the early investors in Paytm, which itself is planning a mega IPO in India later this year.