UAE’s first SPAC on launch pad as alternative to IPO

Abu Dhabi’s ADC Acquisition Corporation (ADC), the UAE’s first special purpose acquisition company (SPAC), on Tuesday announced its initial public offering (IPO) subscription period will start on Thursday.

Shares will be available for purchase to retail and professional investors in a public subscription in the UAE and listed on the Abu Dhabi Securities Exchange (ADX). 

The company aims to raise AED 367 million ($100 million) through its IPO listing. ADC will float 36.7 million shares on ADX with an offer price of AED 10 per share.

• What is SPAC and how do they work?

As the UAE’s first SPAC, ADC aims to focus on businesses that are based in, or have their main operations across the Middle East and North Africa (MENA) region. 

While ADC said it is open to pursuing an acquisition opportunity across industries and sectors, the SPAC will look in particular for scalable businesses with revenue streams that are “underpinned by numerous growth drivers with solid long-term fundamentals, transformational technologies, experienced management teams and attractive pricing which would provide upside potential and benefit from public market access”.

ADC was established last month by ADQ, an Abu Dhabi-based investment and holding company, and Chimera Investments, a private investment firm managing a portfolio of listed and unlisted equities on both local and international markets.

This will facilitate quicker access to capital and operational expertise, result in lower fees, more transparency and allow investors across the region the opportunity to tap into a highly dynamic new space within the UAE’s capital markets landscape

Syed Basar Shueb, ADC vice chairman

According to PwC, the SPAC approach offers several distinct advantages over a traditional IPO, such as providing companies access to capital, even when market volatility and other conditions limit liquidity. 

Mohamed Hassan Alsuwaidi, managing director and CEO of ADQ and chairman of ADC, said: “ADQ is committed to expanding the breadth of Abu Dhabi’s capital markets by creating opportunities for private companies to leverage its unique investment platform and footprint. 

“The formation of ADC Acquisition Corporation supports that objective, and we are also excited by the prospect of retail and institutional investors from the UAE being able to partake in this long-term strategy for unlocking the UAE’s growth potential.”

Syed Basar Shueb, chairman of Chimera Investments and vice chairman of ADC, said: “With the upcoming IPO on ADX, ADC becomes the first SPAC to be based and listed in the UAE. This will facilitate quicker access to capital and operational expertise, result in lower fees, more transparency and allow investors across the region the opportunity to tap into a highly dynamic and fast growing new space within the UAE’s capital markets landscape.” 

The listing is subject to market conditions and customary approvals.

According to Ernst and Young, SPAC transactions are set to become more common in the Middle East as an alternative to the longer IPO process.

During the first six months of last year, Middle East-based companies showed an increasing interest in SPAC deals as a means to go public, said Gregory Hughes, EY MENA IPO and transaction diligence leader.

“We expect this trend to continue as companies seek to increase their international presence and gain access to a wider pool of investors,” he said in a research note.

MENA companies have traditionally found it difficult to access US markets through the official IPO route, but SPACs have eased the accessibility and deepened the capital raising pool for these companies.

Earlier this year, Anghami, a MENA music streaming platform with Lebanese roots and headquarters in Abu Dhabi, went public on Nasdaq by merging with Vistas Media Acquisition Company’s (VMAC) SPAC, at a valuation of $220 million.

The announcement of the UAE’s first SPAC comes as recent research showed that only one third of IPO listings were successful in the GCC region.

Although 2021 was the best year for new listings since 2007, marking 38 market debuts in the GCC region, the report by Iridium Advisors highlighted the low success rate.

Iridium’s analysis of 457 listings in the GCC region between 2005 and 2021 highlighted that the recent spirit of rebirth and optimism in equity capital markets disguised the fact that two out of three GCC listings do not succeed.

“It is very encouraging to see government-owned and private companies embracing public equity markets in the GCC,” said Oliver Schutzmann, CEO of Iridium Advisors.

But he cautioned: “The risk of value destruction is real for private and public sector companies in the GCC preparing for an IPO, SPAC, or a direct listing in 2022. It is, however, not inevitable. 

“Key areas of focus to improve the chances of success are taking a long-term view in pre-IPO preparation, identifying the right type of investor, and developing the capability to create organic relationships with the professional investment community.”