Vertex Technology Acquisition Corporation (VTAC), a Vertex Holdings’ spac, plans to acquire businesses at the forefront of technology transformation, creating long-term value for its target company and stakeholders. VTAC aims to acquire or merge with value-creating businesses at a fast-growth stage of their life cycle and will focus its search on AI, cyber security and enterprise solutions, consumer internet and technologies, FinTech, autonomous driving/new electric vehicle, biomedtech and digihealth.
1. Why do a spac now?
Spacs have been gaining attention and garnering strong momentum in Asia, in tandem with the rise of numerous technology companies in the region. Facilitating the strong interest in Asian spacs is the diverse set of investors who are familiar with the spac offering, with some even being spac sponsors in the US.
Given favourable market sentiments for spacs in Asia and the maturity of local investors, VTAC believes that the time is ripe for a spac listing in Singapore. VTAC’s listing will provide public market investors with the opportunity to invest in fast-growing technology companies at the forefront of technological transformation.
2. How does VTAC differentiate itself from other spacs?
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VTAC leverages the valuable experience of its sponsor, Vertex Venture Holdings (Vertex). Vertex is a Singapore-based global venture capital platform, which provides anchor funding and operational support to a proprietary global network of venture capital funds in key innovation hubs. Across the Vertex ecosystem, it manages a portfolio of over US$5.1 billion ($6.86 billion) assets as of Dec 31, 2021, comprising over 200 companies, including divestments.
Vertex has an over 30-year track record of notable investments, having successfully invested in innovative technologies and divested reputable companies in the US, Europe, Singapore, Hong Kong, China and Taiwan.
Vertex is also a wholly-owned subsidiary of Temasek Holdings and is reputed as a credible long-term value-added partner that has been able to supercharge growth and help businesses succeed. Vertex seeks to create value for its start-up portfolio companies through talent recruitment, business development, fundraising and joint venture support, marketing and community development, and regulatory navigation.
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3. What is the Vertex ecosystem?
The Vertex ecosystem comprises two funds:
(1) Vertex Network Funds — Managed by various independent general partners through a partnership model grouped under Vertex Ventures Israel, Vertex Ventures USA, Vertex Ventures China, Vertex Ventures Southeast Asia & India and Vertex Growth with a total AUM of US$3.7 billion as of Dec 31, 2021, including divestments.
(2) Vertex Captive Funds — 10 wholly-owned and managed funds with a total AUM of US$1.4 billion as of Dec 31, 2021, including divestments.
Together, the Vertex Network Funds and Vertex Captive Funds spread across the key innovation markets and ecosystems of Southeast Asia, India, China, the US and Israel. With entrenched local teams in each region, Vertex offers in-depth local knowledge, expertise, and networks to its stakeholders and investments.
4. Could you share more about your track record on past investments?
Accolades from industry specialists point to Vertex’s strength in guiding the success of disruptively transformational start-ups. In 2019, Vertex was recognised by Crunchbase as among the Top-5 most active privacy and security Investors globally.
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Furthermore, for the third consecutive year in 2020, the General Partner of Vertex Ventures China was recognised with the “Golden Bull Venture Capital Annual Outstanding Institution” award by China Securities Journal and shortlisted in Forbes 2020 — Top 100 China’s Best Venture Capitalists.
For more details of exits made by Vertex, please refer to table 1.
5. How is sponsor Vertex aligned with the interests of VTAC minority shareholders?
VTAC is structured by the sponsor to align its long-term interests with investors by committing to the successful completion of the initial business combination. Vertex has committed $30 million in capital through the subscription of VTAC units (known as sponsor IPO investment units) that are locked up till six months after the completion of the initial business combination.
Additionally, the sponsor will also contribute “at-risk” capital of up to $10 million by entering into a private placement warrants purchase agreement with VTAC, under which the sponsor shall procure Vertex CoInvestment Fund (Vertex SPV), a wholly-owned subsidiary of the sponsor, to subscribe for private placement warrants which will become exercisable on the later of the date that is 30 days after the completion of the initial business combination or 12 months from the date of closing of the offering. The at-risk capital shall be used to pay for offering expenses and operating expenses.
Following the completion of the initial business combination, up to 10.59 million shares will also be allotted and issued to Vertex SPV, subject to a time-based and price-based vesting schedule after the initial business combination. Such vesting schedule aligns the interest of the sponsor with the other shareholders.
6. How does VTAC plan to use the IPO proceeds?
A hundred per cent of gross proceeds raised from the offering — including proceeds raised from the exercise of the overallotment option, if any — and the issuance of units to the cornerstone investors and the sponsor IPO investment units will be placed in an escrow account, which is beyond the 90% requirement in listing rules.
These gross proceeds may only be used for the consummation of the initial business combination, and the payment of deferred underwriting commissions. Interest earned on the escrow funds may be used to pay income taxes and operating expenses if any.
7. When will the initial business combination happen and what if it does not materialise?
VTAC must complete an initial business combination within 24 months from the listing date (or may be extended up to 12 months under approvals and subject to an overall maximum time frame of 36 months from the listing date). The initial business combination will be subject to the simple majority approval of the independent directors of VTAC as well as an ordinary resolution passed by the shareholders at a general meeting to be convened for this purpose.
If an initial business combination is not consummated, the amount then on deposit in 1) the escrow account, including interest earned and not released to pay for taxes or operating expenses, if any (less any liquidation expenses); and 2) any other bank accounts held by VTAC, will be returned to shareholders, cornerstone investors and the sponsor.
8. What’s your investment philosophy and what do you look at when evaluating a potential acquisition target?
VTAC’s mandate is to complete an initial business combination with a business having a core technology focus with highly differentiated products and scalable business models that aims to improve people’s lives by transforming businesses, markets and economies.
Our selection criteria include identifying targets that are at an inflexion point of their growth journey, with a strong management team and possess cross-border potential. These targets must have market leadership and be attractively priced relative to their peers which may provide upside potential and benefit from public market access.
Using the above selection criteria, refer to Table 2 for the six investment themes and market potential that VTAC plans to focus on.
9. How will you find your target for a business combination?
As a limited partner of Vertex Network Funds, Vertex has the benefit of receiving proprietary insights regularly on the performance, growth and market outlook of the investee companies within the Vertex Network Funds. This allows VTAC to have key insights in identifying and evaluating the suitability of such investee companies within the Vertex Network Funds as potential business combination targets.
In addition, VTAC’s management team (with the support of Vertex and its subsidiaries as well as the Vertex Captive Funds and the Vertex Network Funds) has also built a broad network of contacts and corporate relationships globally. This network has grown over the years and we believe that it will provide us with valuable insights into potential investment opportunities from third-party sources.
10. What is VTAC’s value proposition to its shareholders and potential investors?
VTAC seeks to create long-term value for our target company and stakeholders by leveraging our sponsor’s global network, well-established shareholder ecosystem and deep local expertise.
VTAC’s listing on Jan 20 as Singapore’s first spac is only the beginning of the journey. Looking ahead, VTAC places greater emphasis on identifying a suitable target company that will yield a strong business combination at the de-spac stage.
With the guidance of its sponsor, it looks to grow the target company to greater heights and strive to provide greater value for VTAC’s stakeholders.
Emelia Tan is a research analyst with the Singapore Exchange.
