Grofers shelves plan for US listing via SPAC route

Forum Gandhi Mumbai | Updated on July 29, 2021

A flurry of SPACs has led to wariness among investors, say experts

Online grocery firm Grofers has shelved its plan to go public through a special purpose acquisition company (SPAC) in the US.

A SPAC is an empty corporate shell that raises money from investors with the aim of acquiring private businesses by merging them. Also known as blank-cheque companies, SPACs have no operations or business plans when they seek investor money. They raise money, then hunt around for merger candidates and hit the jackpot if they get lucky with their investments.

Fund raise

Earlier this year, it was reported that Grofers was in conversation with the New York-based Cantor Fitzgerald’s blank-check firm to make its public market debut. The Softbank-backed firm was mulling to raise approximately $500 million through this route.

Experts told BusinessLine that there has been a flurry of SPACs in the US since January this year which has led to wariness among investors when it comes to new SPACs. According to Refinitiv, an LSEG Business, SPAC IPOs hit record highs during the start of this year, but the pace of new SPAC listings witnessed a sharp decline in April after witnessing the strongest monthly totals during the first quarter of 2021. March saw 115 SPAC listings globally worth $36.2 billion in proceeds. April totals saw only 18 SPAC IPOs, raising $4 billion, an 88.7 per cent decline in proceeds, and down 84 per cent in the number of new listings from activity in March.

High competition

Elaine Tan, Senior Analyst at Refinitiv, said, “There has been a rapid reversal as regulators stepped in to cool down the market and released new guidelines for more disclosures and transparency around SPAC transactions, pushing companies and investors to reassess these changes. Also, there are more than 450 active SPACs looking for suitable targets after the fundraising frenzy since 2020 that need to close deals within a limited timeframe (usually 18 – 24 months) driving higher competition among SPACs, which could trim high prospective returns for dealmakers. Concerns around the difficulty in securing PIPE investments, which are usually injected to fund acquisitions aside from money raised through IPOs, poses another hurdle for SPACs looking to close a deal.”

Grofers has, meanwhile, raised fresh funds from Zomato. “Both the founders of Grofers and Zomato seemed to have a comfort level with each other, and they saw synergies in doing business with each other hence, Grofers decided to not take the SPACs route,” said a source.

Grofers did not respond to a query from BusinessLine

Published on July 28, 2021

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