China's Primavera launches consumer-focused SPAC

Primavera Capital Acquisition Corporation (PCAC) will focus on global consumer companies with a significant China presence or compelling China potential. Opportunities are expected to arise from the economic fallout of COVID-19, with consumer businesses that were already facing challenges now under additional pressure.

“We further believe that as China becomes one of the first major economies to return to growth since the onset of the pandemic, consumer brands that can disproportionately benefit from strong brand equity and favorable consumption trends in China will emerge as long-term global winners in their addressable markets,” the prospectus states.

The SPAC will leverage Primavera’s track record and network to identify deals. Fred Hu (pictured), founder of Primavera and PCAC, said in a letter to investors that there is huge upside for global consumer brands in China, but success is not guaranteed. In a market that is rapidly evolving in terms of innovation and consumer taste, companies that are not leaders in digitization and localization will be usurped by rivals.

“We believe our SPAC is best equipped to take advantage of a unique set of opportunities that we see in the global consumer space. We share the same business philosophy as these global consumer companies, yet we also possess the local knowledge and resources to elevate their operations in China – precisely what we have accomplished in working with companies such as Yum China,” he added.

PCAC is described as an affiliate of Primavera, with Max Chen, a partner at the private equity firm, serving as CEO of the SPAC. Other management team members include Chenling Zhang, founder of Vcleanse, a Chinese cold-pressed juice company, and Muktesh Pant, formerly CEO of KFC and CEO of Yum China Holdings. They are joined by Teresa Teague, CEO of TTB Partners, who previously worked with Hu at Goldman Sachs, and Sonia Cheng, an executive director at New World Development.

PCAC is offering 30 million units for $10 apiece. Each unit comprises one class A ordinary share and one-half of one redeemable warrant. Each whole warrant can be converted into a class A ordinary share at a price of $11.50 per share. There is an overallotment option of up to 4.5 million units. Hong Kong hedge fund Aspex Master Fund has agreed to invest $80 million in ordinary shares and warrants.

Once a target is identified, a majority of investors must vote in favor of the transaction. On completion, they can exercise their warrants and purchase shares or redeem some or all their shares for cash. If there is no deal within 24 months of the offering, investors get their money back.

The SPAC sponsor – which is solely controlled by Hu – has committed to purchase $8 million in warrants. Moreover, as is standard practice for these structures, the sponsor and management have also subscribed to class B shares for a nominal sum that will convert into a 20% stake in the entity on completion of the offering.

Primavera has $10 billion under management across US dollar and renminbi-denominated funds, having closed its third US dollar vehicle at $3.4 billion in late 2019. It is arguably best known for backing the spin-out of Yum China – operator of KFC, Pizza Hut, and Taco Bell – into a separate US-listed entity in 2017. The firm has also invested in Alibaba Group, Ant Group, ByteDance, Kuaishou, Didi Chuxing, Zuoyebang, Laobaixing Pharmacy, Xingsheng Selected, and Vitaco Health.

Primavera is one of few PE firms in Asia to be affiliated to or formally sponsor a SPAC, though many US-based GPs have done this. Among the others are New Frontier Group – which bought Chinese hospital operator United Family Healthcare – CITIC Capital, Korea’s ACE Equity Partners, and Vickers Venture Partners.

Numerous SPACs have been launched by individuals with experience in the private equity industry. They include Ravi Thakran, formerly head of L Catterton’s Asia operation, Peter Kuo, a co-founding partner at Canyon Bridge Capital Partners, Raymond Zage, CEO of Tiga Investments and previously Asia head at Farallon Capital, and Kenneth Ng, a founding member of Elliot Management’s Asian arm.

Earlier this week, Peter Thiel, co-founder of PayPal, Palantir Technologies and Founders Fund, and Richard Li, son of Hong Kong billionaire Li Ka-shing, established their second SPAC focused on new economy assets in Southeast Asia.

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• Topics
• Greater China
• Consumer
• Fundraising
• IPO
• China
• Primavera
• SPAC