This morning, we had another new SPAC filing to add to the SPAC coffers with AGBA Acquisition Limited, a $40 million IPO. AGBA (whose letters are most likely an acronym of…something, but inevitably, you just wind up calling it “Aggg-Buhh”), will be focusing on businesses in China. Specifically, “….the healthcare, education, entertainment and financial services sectors“, which is pretty broad. So basically just China.
AGBA will be led by Gordon Lee, as Chief Executive Officer, and Vera Tan, as Chief Financial Officer. Looking at Mr. Lee’s bio in the prospectus, he is for sure an entrepreneur having founded a diverse number of businesses spanning education, gaming and even a music streaming application. Vera Tan, brings the requisite finance skills having worked in a variety of positions at Deutsche Bank, Mizuho and Goldman Sachs.
Looking at this SPAC’s structure, we see the typical terms used for a smaller China-focused deal. That is, 100% in trust, a unit with 1 warrant for 1/2 share, plus a right, and 12 months to find a combination. However, if AGBA needs to extend, they will will contribute $0.10 for each additional 3-month extension, of which, they are allowed three extensions (bringing the total duration to 21 months). However, we do have a small twist…
If you look at the underwriting fees, you will notice that Maxim will be receiving 2.5% for their upfront underwriting fee (at IPO) and an additional 4.0% is deferred until a successful combination. HOWEVER, there is an additional “success” layer built-in to the deferred fee. Essentially, the deferred underwriting fee will be reduced by $0.20 (or 2.0% of the gross proceeds) for each share that is redeemed by shareholders at the combination vote. Interesting.
So to sum up, the deferred underwriting fee is no longer just about “getting the combination closed”. Now, the underwriters are incentivized to get the combination closed AND with the maximum amount left in trust. The additional deferred fee of 2.0% is now based on the success of their capital markets capabilities at the de-SPACing. Having said that, the deferred underwriting fee is almost always negotiated away anyway (or paid in securities, etc.) in the event a SPAC is facing significant amounts of redemptions and this is basically just another way of stating that.
In theory, this seems like a pretty good way to incentivize the underwriters to get a SPAC over the finish line with a healthy amount of cash and float. However, it will be interesting to see how it plays out in real-time. The thing is, a good SPAC combo is a good SPAC combo and bad combo….well, it’s extremely difficult to get investors to buy no matter what the capital markets incentive is. Therefore, the real incentive is actually for the underwriters to make sure the SPAC team presents a great acquisition. That’s really what matters.
Summary of terms below: