SPAC-tacular

Global trend for SPACs reaches Latin America.

Special Purpose Acquisitions Corporations are listed investment vehicles purposefully set up to raise money and acquire an unidentified company at some point in the future, typically within two years. Once dubbed a fad, in December 2020 Goldman Sachs envisaged a promising future for these vehicles as they have a low opportunity cost for institutional and small investors when policy rates are near zero.

A senior capital markets analyst in Lima commented, “SPACs have become fashionable as an alternative to the classic IPO as it is much faster and less demanding in terms of information and regulation.”

“SPACs have become fashionable as an alternative to the classic IPO as it is much faster and less demanding in terms of information and regulation.”

Senior capital markets analyst, Lima

The main risks for SPACs are tied to their long-term commitment which might make investors miss out on more promising investments, few guarantees on what the returns might be, and an increased risk of irregularities due to lower SEC due diligence requirements than ordinary IPOs. Not to mention the stonking fees charged by the sponsor and its advisors.

In 2020, SPACs raised USD 82 billion in the US and the trend began to spread to Europe. Since mid-2020 we’ve seen SPACs looking at Latin American targets but there are now rumours of SPACs planning to list in Latin America too.

By our count, the number of SPACs interested in investing in Latin America today is around ten, with Brazil way ahead of its neighbours, attracting about two thirds of the attention. These Brazil-focused SPACs have been set up in the US, as Brazilian investment regulations require three years of audited results before a company is allowed to launch a public offering.

But are SPACs really about to arrive on Latin American exchanges? A former investment banker that ran Latin America doesn’t think so, “SPACs are usually for big transactions and the size of the ticket in Latin America is probably too small. I have heard cases from Colombia and Chile but not in Peru. I don’t see SPACs getting much traction in LatAm.”

“I have heard that Rodriguez Pastor (Grupo Interbank) was looking to create a SPAC with the mandate to merge with mass consumer companies in Latin America.”

Senior capital markets analyst, Lima

The senior capital markets analyst had a different perspective, “SPACs seem to be a global trend and it wouldn’t surprise me if they land in Latin America too. I have heard that Rodriguez Pastor (Grupo Interbank) was looking to create a SPAC with the mandate to merge with mass consumer companies in Latin America.”

 

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