SPACInsider contributors Matt Cianci and Anthony Sozzi this week compiled their three favorite potential SPAC targets in the Asian fintech sector. We look at why they are compelling and why each could be a fit for a blank-check merger.
The US is the undisputed leader of fintech unicorns (with 38 as of August 2020) and of fintech SPAC deals. But, of the nine fintech SPAC deals so far announced in 2021, three have been with Asia-based targets and five of the nine have offices and major operations in the region.
The collective value of all fintech firms in Asia is also likely higher than the US fintech space by a factor of two to three. This is largely due to the over $200 billion valuation of Alibaba (NYSE:BABA)’s fintech subsidiary Ant Financial.
But, in a way, that makes the Asian market potentially even more attractive to SPACs. Subtract Ant from the pie and the Asian fintech landscape is diverse and fragmented country-by-country. It is also a deeper market from an adoption standpoint.
The usage rates of fintech services have doubled or tripled in many Asian markets over the past two years and now 67% of consumers in Hong Kong, Singapore and South Korea use at least one fintech service. Both India and China now have digital fintech adoption rates of 87%, according to Ernst & Young. The average US consumer, meanwhile, lags far behind according to a December 2020 McKinsey study that found just 42% of Americans use fintech services.
This sets up Asian fintech firms targeted by SPACs to go off to the races by rolling up or speeding by peers in their $3 trillion Asian fintech market.
One of the recent focal points of the Asian fintech scene are the eight digital banks that have sprung up in Hong Kong. WeLab was one of the first of these to gain a digital banking license and has grown to about 50 million registered customers.
It has about 600 corporate customers as well and holds a $7 billion credit platform, making it the third largest loan-matching platform in mainland China.
It has been reportedly considering an IPO at a valuation of up to $2 billion, but also raised $75 million in March from the venture arm of German insurance giant Allianz (DE:ALVG). Before this Series C extension, its last outside capital raise had been the $156 million it picked up from an Alibaba-affiliated fund in 2019.
The Alibaba group has twice invested into WeLab, and may be looking at it as a strategic diversification play now that Ant Financial has agreed to a restructuring by the Chinese regulators. That ongoing process makes Primavera Capital Acquisition Corp. (NYSE:PV) an intriguing potential SPAC partner for WeLab.
Its CEO and CFO Tong Chen is a founding member of Primavera Capital Group, which invested in Ant Financial in the past, and is therefore knowledgeable about the Chinese fintech space and also potentially incentivized to back a second horse in the market with Ant in the regulatory crosshairs.
WeLab has raised about $656 million in outside funding to date but is eyeing further expansion to Southeast Asia and Indonesia, which will be a capital-intensive process that a SPAC might be able to facilitate.
Across the Sea of Japan, Paidy has embedded itself as a leading buy now, pay later (BNPL) facilitator for Japanese shoppers. It just closed a $120 million Series D in April, but could still stand to toss more financial logs on the fire as it gets ready for a post-pandemic renewal of consumer buying trends.
Paidy’s main product is a “3-Pay” offering that allows shoppers to pay for a purchase in three equal, interest-free payments. This is significantly different from the BNPL model that is more common in the US, which sees shoppers paying in installments that end up shelling out as much as 100% interest on their purchases.
Technology has made it possible to assess a borrowers’ creditworthiness at a much faster rate and BNPL options are increasingly being integrated with merchants as an option at checkout. So far, the market likes the promise of these companies.
FinServ (NASDAQ:FSRV), which announced a $993 million combination with BNPL lender Katapult in December, closed Thursday trading at $12.50, while FG New America (NYSE:FGNA) is also keeping itself trading above trust value through its $909 million announced deal with OppFi. Established US BNPL player Affirm (NASDAQ:AFRM), meanwhile, trades at 23.8x revenue.
For its part, Paidy has expanded its services to about 700,000 websites and 5 million accounts. Goldman Sachs (NYSE:GS) led a $52 million debt round aimed at boosting Paidy’s logistical capacity in 2019 and the company has raised just under $400 million in equity financing to date.
Paidy was reportedly valued at $1.3 billion in its last capital raise, and has the potential to cross the Pacific as player in the BNPL space where it would be untainted by the sometimes predatory reputation of US merchant financing fintechs.
MioTech provides tools to understand both of the above potential deals, as it is one of the leading AI-powered market data providers for the Asian investing space. It has moved beyond unstructured excel datasets into insights that allow investment managers to integrate news, prices and macro data into more easily consumable visualizations.
It translates local press reports and can give a broader due diligence look at fraud risk with certain companies and executives either under scrutiny or falling out of favor.
All of this is particularly rare for the Asian market, and MioTech brings an ESG risk component that is a missing piece for many organizations investing in unfamiliar markets. Those institutions are already putting strategic money to work with MioTech.
Moody’s (NYSE:MCO) bought a minority stake in the company in November and HSBC (LSE:HSBA) participated in its January capital raise. To that end, MioTech could interest a number of SPAC teams as a strategic investment by their affiliates as much as a potential value play on the public markets.
At the moment, most of MioTech’s analytical lenses are pointed towards China, but the wider Asian markets are also open territory for the company’s tools and SPAC proceeds could allow it to expand that coverage more rapidly.
Four listed SPACs – MACC, SVOK, YTPG and TPGS – have highlighted ESG as one of their main drivers of their target search. Six, meanwhile, have specified Asia as an their hunting grounds, these include Provident (NASDAQ:PAQC), Catcha (NYSE:CHAA), Model Performance (NASDAQ:MPAC), Venus (NASDAQ:VENA), Greencity (NASDAQ:GRCY), and Magnum Opus (NYSE:OPA).