Latin America may see wave of new “unicorns” with liquidity

RIO DE JANEIRO, BRAZIL – With investors developing a growing appetite for riskier investments, the Latin American region is expected to be the target of at least R$16.5 billion (US$3 billion) of inflows from “blank check” companies this year.

According to Bank of America’s previous projection, this is the estimate of offerings by Spacs** (Special purpose acquisition company) dedicated to the region in 2021. In general, at the end of the process, the Spac will become a minority shareholder with about 20% of the invested company’s equity, having written a check that usually exceeds US$200 million. The expectation is that this wave of Spac investments will create a new wave of “unicorns”, as startup companies valued at more than US$1 billion are called.

Today, Spacs offerings are concentrated in the United States. However, due to the growth, the subject has already reached the Brazilian regulators, who are, with the Brazilian Stock Exchange, analyzing the subject, according to Estadão newspaper. Locally, the company to be listed needs to have its balance sheet audited, for example, something that is not possible in an “empty” company that is still going shopping.

Meanwhile, the pace of offerings that target the country is growing. Itiquira Acquisition, commanded by Paulo Gouvêa, former partner of EBX and XP, raised this year US$200 million on the American Nasdaq exchange to buy a company in Brazil.

According to Gouvêa, the high demand of foreign investors for his Spac had the support of stories of very successful companies on Nasdaq, such as XP s and payment company Stone. “Brazil has fantastic success stories there,” he comments.

Alpha Capital, whose target is a technology company in Latin America, has behind it the Argentineans Alec Oxenford and Rafael Steinhauser, old acquaintances in the technology sector. They raised US$230 million in a Spac also this year. Oxenford was one of the founders of Arremate.com and OLX, while Steinhauser has 35 years of corporate experience in the sector and was president of Qualcomm Latin America.

Oxenford says that Spacs in Latin America will play a vital role in closing an investment loop for technology companies. He says smaller companies are being watered down by venture capital, but there is still an investment gap after the company gains size and needs a new round of investment.

“There are more than 20,000 technology companies in the region, and a large part of them have emerged in the last three to four years,” he says, recalling that in 2020 companies in the sector experienced a big growth boom with the pandemic. “I think we are facing a real evolution happening in Brazil. It is a virtuous growth cycle for the sector,” says Steinhauser.

Pedro Pereira, responsible for the technology area in Latin America, from Bank of America’s investment banking team, points out that investors still don’t know which company will actually go public: the meetings before the offering basically revolve around the “persona” of this manager. “Investors want to understand the capacity of this manager to achieve an allocation in a premium asset, the ability to convince the target company of the investment and still generate value,” he explains.

** A special purpose acquisition company (SPAC) also known as a “blank check company” is a shell corporation listed on a stock exchange with the purpose of acquiring a private company, thus making it public without going through the traditional initial public offering process. According to the U.S. Securities and Exchange Commission (SEC), “A SPAC is created specifically to pool funds in order to finance a merger or acquisition opportunity within a set timeframe. The opportunity usually has yet to be identified.” SPACs raised a record US$82 billion in 2020, a period sometimes referred to as the “blank check boom”.

Source: Infomoney