As SPACs target Tokopedia and Traveloka, here’s what you need to know

When it rains, it pours.

In mid-December, reports surfaced that Bridgetown, a Special Purpose Acquisition Company (SPAC), was considering a merger with Tokopedia.

Bridgetown had been listed on the NASDAQ stock exchange in October, raising US$595 million in proceeds.

The reports were followed by a statement from Traveloka that it was looking to go public soon. Traveloka president Henry Hendrawan said that a SPAC “is one of the options we are evaluating given we have been approached by a few.”

Reports have also mentioned Grab, Gojek, and Bukalapak as potential SPAC targets.

SPACs provide an alternative to IPOs

A SPAC provides pre-IPO companies like Tokopedia with an alternative route to listed status.

It is a shell company with no operating history that raises funds through an IPO. It then uses these funds to hunt for a target to merge with (in a process known as de-SPACing), and consequently converts the target into a publicly traded company.

Some SPACs focus on completing an acquisition in a particular geography or industry, while others have no such mandate. For example, Bridgetown’s regulatory filings state that it is looking for a target with operations “in the technology, financial services, or media sectors in Southeast Asia.”

SPACs cannot identify specific private companies as targets pre-IPO. Otherwise, the rules would require disclosure of the target’s details.

This is why SPACs are also known as “blank-check” companies.

SPACs are not a new concept. Historically, they’ve remained small and developed a reputation as capital sources of last resort.

However, they have been showing significant growth in recent years.

How does a SPAC work?

SPACs bring advantages but raise other issues

To SPAC or not?

Is supply keeping up with demand?