Nasdaq beauty contest: Spac, flush with more than US$145m, seeks merger with Aussie or NZ tech firm

A spac (special purpose acquisition company), flush with US$145 million ($200m) is looking for an Australian or New Zealand technology firm to merge with – an arrangement it says will offer a low-cost, fast-track route to a US listing.

Integral Acquisition Corporation 1 raised US$115m with its November 3 listing on the Nasdaq, and also has US$30m in forward purchase agreements.

Rocket Lab raised US$750m when it listed on the Nasdaq via merger with a spac (or “blank cheque”company) called Vector Acquisition. The deal allowed Peter Beck’s company to effectively reverse-list on the United States exchange as it backed into the slot already occupied by Vector – avoiding the need for a full prospectus and other costs and complications that come with a traditional IPO.

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Integral is offering an Australasian firm the same shortcut to the Nasdaq, but has only just begun a process – expected to take months – of settling on a merger candidate.

The US-incorporated, Melbourne-based Integral is led by its chief executive Enrique
Klix, who has a hard-nosed corporate background (he’s previously held executive roles with McKinsey and Citi), and its more touchy-feely chairman James Cotton – the self-styled “impact entrepreneur” and “startup mentor” who founded Uluwatu Capital (motto: “Helping people and the planet”).

Klix and Cotton’s Uluwatu Capital are both key investors in Integral, alongside other US and Canadian institutional investors specialising in spacs.

The pair bill their spac as the first to target only an Australian or New Zealand technology company (Vector, which eventually settled on the Kiwi-American Rocket Lab, had a roving eye).

Klix told the Herald the duo are focusing on Australasia because it’s the market they know. They are looking at potential merger prospects across the board, but the CEO said edtech, agtech and fintech are areas of special focus.

They’re looking for a target that could list at a valuation of between US$300m – no longer an outrageous amount in the NZ market. It’s seen three $1 billion-plus deals over the past 12 months with the $1.05b sale of Christchurch’s Seequent to Nasdaq-listed Bentley systems, Rocket Lab’s merger with Vector and subsequent listing at a US$5.4b valuation and $3b merger of the Murray Bolton-backed Transaction Services Group and Clearent to create Xpilor. And there have been many chunky deals on the next tier down, such as KKR buying into Dunedin-based Education Perfect in a deal that valued the ed-tech at $455m.

Like all spacs, Integral is time-limited. Klix says it has 18 months on its clock, but he expects a deal well within that time, and for other, related spacs to follow (hence the “1” after Integral’s name). He says the first effort hit the ground running, raising US$15m above its US$100m target with its over-subscribed listing, which was managed by Wells Fargo.

Why should an Australasian tech firm want to hook up with Integral rather than take the more traditional IPO route on its own?

“We’re very founder-friendly,” Klix says.

“We are not here to run a company. We’ll take a seat on the board from a few months and then it will be over.

“And then there’s combining around a Series C, D, E, and F [raises], all together in one go.

“So instead of doing multiple rounds, if you merge with us, you have access to US$150m or so all in one go, if necessary more.

“We’re local. So we understand what the local entrepreneurs and the local VCs want.

“And it’s a fast-track to the Nasdaq, and it’s less distracting than atraditional IPO. If you’re trying to run a business that’s growing double digits, you don’t have time to focus on the IPO process, which could be very time-consuming.”

Allbirds left money on the table

His trump argument for turning to a spac involves a company co-founded by a Kiwi.

“Allbirds left money on the table,” Klix says.

“They could have raised the same money by selling half the amount of equity.”

Allbirds raised just over US300m as it listed at US$15 per share, but topped US$31 during its first session.

The Financial Times said last month that ” spacs, which were the hottest product on Wall Street earlier this year, have fallen out of favour with investors”.

The paper cited Dealogic data that showed the average redemption rate during the third quarter was 52.4 per cent. That marked a significant increase from the first three months of the year when just 10 per cent of investors chose to redeem their cash and is up from 21.9 per cent in the previous quarter. High fees for some blank cheques have caused controversy, and there has been increasing scrutiny from the US Securities and Exchange Commission.

For Klix, the greater attention from the SEC shows the spac market is maturing. He says he welcomes the extra scrutiny, which he says can give investors more confidence.

And he says Integral is already lining up a potential partner (while a spac could in theory invest in more than one company, the CEO notes that “99 per cent” invest in a single target).

“We have a shortlist of companies that are super-attractive. We’ve already had a few conversations and we’ll have more in the coming weeks.”

He says NZ companies are capable, but also aware they need to marry upward.

“We like Kiwi entrepreneurs because of the number eight wire mentality. We think it’s sensational,” Klix said.

“But Kiwi entrepreneurs know from day one that they need to go global to justify investment in technology in good people. They know that their domestic market is very interesting, but has some size limitations.”

And while there is a booming venture capital scene in NZ, and the option of listing on the NZX or ASX, Klix says, “We believe the Nasdaq represents a more natural home for high-growth tech startups looking to solve global problems, providing access to investors that understand their value, as well as appropriate benchmarks and a broader community of analysts focused on technology companies.”

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