ACE Equity-backed SPAC acquires US electronics player
ACE Convergence Acquisition Corp, a special purpose acquisition company (SPAC) sponsored by Korean PE firm ACE Equity Partners, has completed a merger with US-based electronics manufacturer Tempo Automation. The equity valuation of the business was cut by more than half during the process.
ACE Convergence raised USD 230m in July 2020 as the first SPAC sponsored by a Korean manager. ACE Equity operates in Korea on a project fund basis and started exploring cross-border investments in conjunction with Denis Tse, formerly of Lockheed Martin Investment Management and latterly of Asia-IO Advisors. This led to the formation of the SPAC.
ACE Convergence agreed to merge with California-based Achronix Semiconductor Corporation in January 2021. However, the transaction was abandoned six months later because neither party believed regulatory approvals would be forthcoming within the desired timeframe.
Tempo – a software-accelerated electronics manufacturer – emerged as a merger target in October 2021. The company claims to speed up the printed circuit board assembly process for low-volume manufacturing. It targets the USD 290bn US prototype and on-demand manufacturing segment, working with industrial and medical technology, automotive, and defence and aerospace clients.
The transaction gave Tempo an equity valuation of USD 919m and was intended to leave the company with USD 391m in gross cash proceeds.
ACE Convergence contributed USD 230m to the overall equity consideration of USD 940m, supported by a USD 95m backstop against potential redemptions, which included USD 25m from ACE Equity.
There was also a USD 82m PIPE commitment anchored by Point72 Ventures and ACE Equity; a USD 25m convertible note provided by ACE Equity; and USD 54m in senior debt proceeds. The senior debt facility was worth USD 150m and split between the backstop and the equity commitment.
The SPAC investors and SPAC sponsor would hold 25% and 6%, respectively, of the merged entity, with PIPE investors taking 9%. Existing Tempo shareholders would roll over their equity for 50%, while shareholders of Advanced Circuits and Whizz Systems – acquired using a portion of the transaction proceeds – would get 8% and 2%.
In 2020, Tempo generated USD 142.3m in revenue, USD 23.6m in EBITDA and USD 400,000 in net income. Revenue was projected to reach USD 146.3 in 2021 and USD 331m in 2025, while EBITDA for the same years was expected to hit USD 18m and USD 110.1m, according to an investor presentation from October 2021.
The transaction was delayed and then restructured in August 2021. ACE Acquisition was redomiciled from the Cayman Islands to Delaware and new shares were issued. Assuming no redemptions, the SPAC sponsor and related PIPE investors would hold 23.4%, with 10.2% going to SPAC investors, 10.2% to third-party PIPE investors, 3% to Cantor Fitzgerald, and 54.2% to existing Tempo investors.
Third-party PIPE investors included Point72, Lux Ventures, SQN Venture Partners, and Structured Capital. SQN and Structured Capital provided the senior debt for the first iteration of the deal.
The initial equity valuation of USD 919m reflected the USD 536m valuation placed on the existing Tempo business and the equity contributions being made by new investors. The base purchase price was USD 658.4m.
However, Tempo’s valuation was subsequently reduced three times to USD 425m, to USD 350m and then to USD 235m. This was driven by changing market conditions and the Advanced Circuits acquisition falling through. The base purchase price dropped to USD 235m but was revised upwards to USD 257.9m – owing to a miscalculation – late in the process.
The company’s revenue for 2021 was USD 17.4m and EBTIDA was negative USD 25m. The projections for 2025 were altered to USD 36.4m and USD 6.6m. According to a filing, initial projections were based on the impact of the add-on acquisitions through increased revenue growth and economies of scale.
Following the shareholder approval of the merger on November 17, Tempo began trading on NASDAQ on November 23. The stock closed at USD 10.50 on November 18 – the SPAC offering was priced at USD 10.00 per share – and then fell as low as USD 7.57 on November 23 as SPAC investors redeemed their positions. It then rebounded to USD 15.15 before closing at USD 10.30.
The company has a market capitalisation of USD 89m.
“It’s been an honour helping Tempo Automation on their path to becoming a publicly traded company, where they can leverage the public market capital to scale, and realise their vision of becoming the leader in the software-driven PCB prototyping industry,” said Behrooz Abdi, chairman and CEO of ACE Acquisition and incoming chairman of Tempo, in a statement.
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