Korea's ACE Equity launches SPAC targeting IT infrastructure
Korean private equity firm ACE Equity Partners has taken another step in the development of its cross-border investment capabilities with the launch of a US-listed special purpose acquisition company (SPAC) to pursue IT infrastructure assets.
It is said to be the first SPAC sponsored by a Korean manager and only the third to come out of Asia in recent years. In 2019, a SPAC backed by New Frontier Group, an investment firm established by two former China executives at The Blackstone Group, acquired Chinese hospital operator United Family Healthcare from TPG Capital. CITIC Capital launched a similar structure earlier this year.
The handful of other Asia-related SPACs to emerge since 2018 have not been sponsored by private equity firms. For example, Chinese co-working space operator Ucommune was last week merged into a SPAC led by an individual who primarily invests in technology assets through her family office.
ACE was established in 2017 by David Ko, formerly an executive at SkyLake Investment. The firm has been operating on a project fund basis, targeting industrial technology businesses. Recent activity includes the acquisitions of Tesna, a Korean semiconductor testing specialist, and Daeho Technology Korea (DTK), a manufacturer of glass used in smart phones.
Cross-border transactions have become a focus following the formation of an international subsidiary in conjunction with Denis Tse, formerly of Lockheed Martin Investment Management and latterly of Asia-IO Advisors, which creates customized co-investment opportunities for institutional investors. Asia-IO has a similar interest in technology and manufacturing. Its first deal involved Maxnerva Technology Services, a smart factory systems integration spin-off from Foxconn Technology Group.
Tse is a director of the new SPAC alongside Behrooz Abdi, the CEO and chairman, and Sunny Siu, who serves as president. Abdi was most recently general of an electro-mechanical sensor division within TDK Corporation and CEO of InvenSense, a manufacturer of motion tracking sensors that was acquired by TDK in 2016. Siu is co-founder of ProphetStor Data Services, a specialist in artificial intelligence for IT operations, and previously led a Greater China division of Broadcom Corporation.
They plan to raise $200 million through the issuance of 20 million units at $10 apiece. Each unit comprises one class A ordinary share and one-half of a redeemable warrant. Once the SPAC identifies a target, a majority of investors must vote in favor of the transaction. On completion, they can exercise their warrants and purchase one ordinary share for each whole warrant or redeem some or all their shares for cash. If there is no deal within 18 months of the offering, investors will get their money back.
The sponsor, ACE Convergence Acquisition Corp, and other founding shareholders have subscribed to 5.75 million class B shares for a nominal sum that will convert into class A shares on completion of the deal. The conversion will be structured to give them a 20% equity interest. The sponsor has also committed to purchase six million warrants at $1 apiece. Moreover, the sponsor must cover any costs incurred during the sourcing and execution process.
The goal is to acquire an emerging leader in the IT infrastructure software and systems space that can leverage the digital transformation of industrial assets. “In the last five years, we have witnessed a deluge of key technological advances in infrastructure IT, such as deployment of artificial intelligence, big data analytics and intelligent sensors in the IT infrastructure and cloud computing environment, ubiquitous connectivity, cybersecurity and cloud-native development platforms,” the prospectus notes.
However, the US public markets have generally not been receptive to infrastructure IT businesses with valuations below $1 billion. An average of 32 technology companies listed each year between 2011 and 2019, but fewer than 60 during this nine-year span were infrastructure IT players. About half of those that listed had valuations below $1 billion. A merger with a SPAC might, therefore, be an attractive path to liquidity for shareholders.
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