An introduction to the Provident Acquisition Corporation (NASDAQ: PAQC)
Foreign marketplaces are starting to see the benefit of avoiding the traditional IPO process and favouring the SPAC route. The US trend has spread to Europe and can be seen increasingly more so in Asia. The PAQC SPAC is the latest offering bringing a huge blank check to the South East Asian Tech sector.
Hitting the open markets with a sizeable $200 million offering on the 7th January 2021. The company wrapped up with $230 million a few days later. Selling the usual $10 units composing of a single unit and half share warrant. There still is a lot of speculation as to where exactly the company is looking.
Asia is a relatively untapped market with a large number of Unicorns just itching to go public. Is the Provident Acquisition Corporation is a good position to merge with one of these targets? Read on.
Sponsor Analysis & Context
The listed sponsor is Provident Acquisition Holdings Ltd with the sole underwriter of the transaction as Citigroup. Although a sizeable amount, the involvement of a solo bookrunner is a fantastic sign of a quality SPAC with solid assurances. The primary deal flow through the company should come with close affiliations with the Provident Growth Fund as well as the members of the Upper Management. Although the Board Members are highly respected and reputable, their past experiences and connections are quite different to the targeted sector of the PAQC SPAC (Asian Tech Unicorn).
A highly successful growth fund with a clear focus on Technology investments across South East Asia. Headquartered in Hong Kong yet mainly focused on Indonesian-based opportunities. The company has been involved with a number of high profile and extremely successful companies across its reasonably short lifespan. As of 202, the company maintains around $2 billion worth of assets under management.
The company has identified an emergent sector across the locale. The rapidly expanding tech-savvy middle-class. Although overall wages and salary are lacking in comparison to first world countries, the beauty of technology is that it largely transcends these limitations. With many mobile and online-based services. However, it is no secret that these companies have reasonably low startup costs with unbelievably effortless scalability.
We take minority stakes in growth stage technology companies.Provident Growth – 2021
In SEA, networking and connections are probably the most important requirements of a sponsor. Fortunately, Provident Growth is in a brilliant position as a highly reputable and well-connected company across SEA as well as within the Tech sector.
Sitting as Chairman of the PAQC SPAC as well as the Founder of the Provident Group. Mr Kartono brings an impressive 24 years of experience from across the financial world. Primarily focusing his experience on founding, investing, building and operating businesses.
On the board of a number of major companies around the region. Mr Kartono also serves at Gojke, the largest Internet platform in Indonesia. As well as a Co-Founder of JD.id, tower Bersama and Merdeka Copper Gold. Despite his great success through the establishment of Provident Capital Indonesia (PCI) in 2004 and Provident Growth in 2018, Mr Kartono also maintained a great deal of success through larger corporations.
Working at Salomon Smith Barney (now Citigroup) from 1996 till 2004, last sitting as the Head of Investment Banking in Indonesia. Mr Kartono has such clear connections and relations to many likely targets of the PAQC SPAC.
Michael Aw Soon Beng
Sitting as both CEO and CFO, Mr Michael is also a Founding Partner of Provident Growth. Bringing with him an impressive 20 years of experience within both the Investing and Investment banking sector. currently sitting on the board of a number of high-growth emergent tech companies that are based across SEA.
Pomelo, a tech-driven fashion brand that is based in Thailand and spreads throughout SEA. As well as Horangi, a rapidly developing cybersecurity SaaS company. Mr Michaels most relevant connections like with his relations to Traveloka. Considering Traveloka as a likely candidate for combination with the PAQC SPAC.
Prior to founding Provident Growth in 2019, Mr Michael also sat as Managing Director of Provident Capital with a clear focus on the SEA Technology-related investments. Previously spent 16 years at the UBS investment banking division in Hong Kong, last sitting as the Managing Director and Head of Technology, Media and Telecommunications.
Targeted Sector & Market Criteria
It can be clear to see that PAQC SPAC is focused on the Tech sector across SEA. A $230 million check is certainly a very sizeable amount and there are definitely a large number of unicorns within SEA that are looking to go public. However, the company has narrowed down the search to “consumption-focused companies with disruptive growth potential.”
These are the sort of tech-sector qualities that investors find extremely attractive. Traditionally, the $230 million should be a clear indication of the estimated enterprise value of any potential targets. However, there have been multiple talks about PIPE investments. Rumoured towards the $55 million mark.
However, this $55 million PIPE is still speculative. The PAQC SPAC is free to seek larger (or smaller) PIPE investments should it desire so. Regardless, the idea has been planted and the capability to increase its trust certainly leaves larger valuation companies within its sights.
It should be noted that the introduction of the PIPE may be attractive post-combination and will certainly benefit post-deal value generation. However, from the point of view of a SPAC investor, it certainly detracts.
Furthermore, the primary reasoning behind US-listed SPACs seeking foreign targets is the great advantage of foreign exchange and the serious undervaluation of international companies in relation to the often bloated US marketplace.
When considering the focused DD that the PAQC SPAC highlights, the most notable considerations are the rapid development of mobile technology and the high level of social media penetration and engagement across SEA. Perhaps these factors are a clearer indication of where in the Tech sector the PAQC is searching?
Deal Flow Analysis
The Provident Fund has personally invested in a number of highly prolific and influential companies across the region. Having invested in 13 high-growth technology companies, Provident Growth has a clear eye for potential. The Upper management is personally linked to a number of these companies as well. Furthermore, many Unicorns across the region have publically announced their intentions to go public. The following is a shortlist of the most likely candidates.
There has been much speculation regarding the IPO process of some of the above companies. Tokopedia, an Asian E-commerce company, has stated that it intends to enter the public markets through a Morgan Stanley affiliated SPAC. Even Grab, a ride-sharing app, is in talks to go through a $40 billion SPAC process.
These are all rumours and subject to change, but the interest in the SPAC process is certainly there. The following SEA Unicorn Technology companies are personally related to Provident Growth and the Upper Management of the PAQC SPAC:
Showing interest in Gojek from as early as 2017. Provident worked closely on a number of different initiatives. Gojek is the largest online platform in Indonesia and one of the largest across SEA. Offering a variety of services from ride-hailing, food delivery and even financial services. With around 170 million users, 600 000 sellers and 2 million drivers and spanning 5 countries. The company is one of Indonesia’s largest unicorns with a whopping $10 billion valuation.
Investing in 2020, the company is one of the largest e-wallet and digital payment options around Indonesia. Especially when considering downloads and monthly activity. Further growing its SEA bank relationships in order to advance, the company offers an increasing amount of financial solutions. Extending to investments, insurance and even point-of-sale for merchants. Last having recorded the processing in excess of $6.3 billion in annualized gross transaction.
This highly successful company was actually Co-Founded with Provident Group in 2015 and has seen nothing but continued growth until attaining Unicorn status. The company is a high growth Business-to-Consumer (“B2C”) company. A strong entrant offering an E-commerce platform for over 20 million registered users across Indonesia alone. Extremely strong infrastructure, authentic products and its own proprietary express delivery service. The company currently maintains 11 warehouses and extends to 400 cities in its ever-expanding nationwide operations.
Provident is an early investor in the venture from as early as 2016. Currently operating in 8 markets, the company is an online travel agency and one of the largest across SEA. Extremely dominant in Indonesia, Thailand, and Vietnam. Offering a multitude of travel-related products from transportation, hospitality, lifestyle, entertainment and even financial services. With over 40 million app downloads and multiple international partnerships, the company is one of the few Indonesian unicorns that has explicitly sought the public markets in recent times.
Reported to be in talks since December 2020 with a number of SPACs. Traveloka’s CEO has been clear with the company’s intentions, it is a matter of selecting the correct partner (seeking a $5-$6 billion valuation). The close relations that the PAQC SPAC team and Provident Growth fund maintain with Traveloka is a great sign.
PAQC SPAC In Summary…
The PAQC SPAC seems to be entering the marketplace with an extreme level of confidence. Looking at the perfect sector in a rapidly emergent industry. The Company also maintains extremely impressive ties with a number of Unicorns across the region.
It certainly does seem certain that the PAQC shall be identifying an extremely quality target. Unfortunately, the extremely Asian flavour of the Team, combined with the half-warrant structure can leave US investors extremely hesitant. Furthermore, the mention of a PIPE investment (to the value of $55 million) can also heavily skew SPAC share prices.
Regardless, the numbers behind the DD certainly add up. Indonesia is the 4th largest population on the planet, a whopping 270 million people. A number of well-established and highly successful sectors in Western markets are set to explode all around the world and it is impossible to ignore the sheer number of Unicorns just idling in the stables.
One thing is for certain, we encourage providence when looking to invest in the Provident Acquisition Corporation.