February 25, 2021 2:59:04 am
Renewable energy producer ReNew Power on Wednesday announced an agreement to merge with RMG Acquisition Corp II, a blank-cheque company or a special purpose acquisition company (SPAC). The merger of ReNew Power with RMG Acquisition will result in the former’s listing on Nasdaq and gross cash proceeds of around $1.2 billion.
The deal is the first involving an Indian company during the latest boom in SPAC deals that have continued in 2021 after witnessing a record year in 2020. In addition to ReNew Power, online grocery platform Grofers is also reportedly in advanced stages of exploring a SPAC deal.
A SPAC, or a blank-cheque company, is an entity specifically set up with the objective of acquiring a firm in a particular sector. The aim of this SPAC is to raise money in an initial public offering (IPO), and at this point in time, it does not have any operations or revenues. Once the money is raised from the public, it is kept in an escrow account, which can be accessed while making the acquisition. If the acquisition is not made within two years of the IPO, the SPAC is delisted and the money is returned to the investors.
What makes SPACs attractive to investors, despite them essentially being shell companies, are the people sponsoring the blank-cheque company. For example, in case of ReNew Power, the SPAC RMG Acquisition Corp II — which raised $345 million in an IPO last December — has also been backed by marquee investors such as BlackRock, BNP Paribas, Chamath Palihapitiya, and others. These investors participated through a private placement, by which the remaining $855 million was raised.
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Globally, prominent names such as former NBA player Shaquille O’Neal, former TikTok CEO Kevin Mayer, Michael Dell, Vinod Khosla, Arianna Huffington, etc. have participated in SPACs. In India, online travel agency Yatra.com and Videocon D2H have listed abroad through SPAC deals in 2016 and 2014, respectively.
However, a fresh push to SPACs has come since last year. According to data sourced from SPAC Insider, a portal that maintains a record of SPAC deals, of the 645 such IPOs by blank-cheque companies since 2009, 248 happened in 2020 and 171 in 2021 so far. The gross proceeds raised by SPACs in 2020 amounted to over $83 billion.
“It is a fresh way of thinking of how to structure and exit versus an expensive IPO. The money is already raised by somebody who specialises in that area, and is now picking those assets and building on them,” Sunil K Goyal, MD, YourNest Venture Capital, said.
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