New listing rules for China’s tech companies could ‘dampen’ appetite for SPAC deals
- Perceived regulatory risk of Chinese tech companies could weigh on blank-cheque deals for the country’s high-flying unicorns
- Target companies may be unwilling to ‘stick their heads out’ in today’s regulatory environment
Heightened oversight of foreign listings by China’s tech unicorns and an uncertain regulatory environment could weigh on the pace of deals by special purpose acquisitions companies (SPACs) seeking to acquire Chinese companies as they deploy huge financial war chests raised in the past year, according to deal makers and sponsors.
So-called blank-cheque companies raised more than US$105 billion in the first half of this year and sponsors – both based in Asia and in the US – have been increasingly turning their attention to targets in Asia, particularly growth companies in China, as the marketplace has become more saturated. China is home to two-thirds of Asia’s tech unicorns.
However, a new slate of draft rules announced last week by the Cyberspace Administration of China (CAC) threatens to slow the rate of US listings by Chinese tech companies – and attractiveness of those companies to American investors.
It is early days, but it is possible the new regulations could weigh on acquisitions of Chinese companies by blank-cheque companies, according to Kristin Zimmerman, who heads Morgan Stanley’s SPAC M&A practice in New York.
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“There are a number of unicorns coming out of Asia and China, in particular, that may raise a flag to the regulators that these businesses are going overseas in the form of a SPAC transaction,” said Zimmerman, who was speaking at a “Asia SPAC Management Bootcamp” workshop last week. “Time will tell, but I suspect, as you see some of these announcements come to fruition, that may raise the attention of the broader political agenda.”