SoftBank Vision Fund’s Proposed SPAC: Raise Capital First, Acquire a Company Later

SoftBank plans to establish a SPAC as a shell-based route to listing. On October 12, SoftBank’s Vision Fund disclosed a new plan: to establish a special purpose acquisition company within the next two weeks. The English abbreviation is “SPAC” (Special Purpose Acquisition Company). A SPAC is one route to a shell-based listing overseas. You may have heard of the domestic practice in which a company acquires another listed company cheaply to obtain its listing status. Unlike that form of “buying a shell to list,” SPAC investors first raise money and create a new shell company. Once fundraising is complete, those in charge of the shell acquire an unlisted business. Completing the acquisition effectively brings that business to the public market. Vision Fund CEO Rajeev Misra said the fund was establishing a SPAC to provide its investee companies with a route to listing in a highly uncertain market. The fund had not disclosed whether the new SPAC would be used to list an existing portfolio company or a new investment. Misra said it would target growth companies in later funding rounds. Some of the SPAC’s capital would come from the Vision Fund, with the rest coming from market investors. Bloomberg Businessweek reported that SPACs were particularly popular in 2020, raising a total of US$41 billion—more than the combined total for the preceding ten years. This year, 40% of U.S. IPOs used SPAC shell companies to go public. U.S. technology publication The Verge suggested that SPACs might be particularly popular this year because of the high level of uncertainty in the U.S. stock market. Traditional IPOs carry valuation risk: offering prices are sometimes set too high or too low. In this year’s environment, the market’s reaction to an IPO is even less predictable. By comparison, SPACs eliminate some of that risk by offering a predictable valuation range for the company preparing to go public. For a company seeking a listing, a SPAC reduces the workload. There is no need for an IPO roadshow or dealings with a large number of institutional investors; it need only negotiate with the party controlling the SPAC. This approach can also shorten the time to listing considerably—to as little as a few weeks.