The Lifestyle And Culture Company Merges With Blank Check Company Iron Spark I
Hypebeast is bringing its stock to the United States through a merger with the SPAC Iron Spark I that will value the company at more than $530 million following the investment.
- SPACs are shell companies that raise money in an IPO and deposit it in a trust with the intention of merging with a private company wishing to go public
- When a SPAC buys a firm, it merges with it in a kind of accelerated IPO process known as a "reverse merger," skipping the usual IPO screening
Following the merger, the shares will be dual-listed in Hong Kong and on the Nasdaq. Hypebeast has been listed in Hong Kong since 2016, after it was founded in 2005 as a sneaker blog by now-Chief Executive Kevin Ma.
- According to Hypebeast's press realease announcing the SPAC merger, the company achieved a revenue CAGR of 34% from 2015 to 2021
- It expects to generate revenue of over $112 million in the fiscal year ended March 31, 2022
Hypebeast Deal To Shake Up Dormant SPAC Market?
The deal takes place at a time when the SPAC market is quiet. Blank-check businesses exploded in popularity starting in the mid-2020s. In 2021, shell corporations accounted for more new stock listings than traditional IPOs.
However, in 2022, the SPAC market is being hammered as speculative stocks with low profitability have fallen out of favour in response to rising rates, inflation and the challenging climate.
Unlike many other firms that have gone public through SPACs, Hypebeast differs in that it is already profitable. According to a regulatory filling, Hypebeast had a net profit of $8 million in the six months ending in September.
- According to Dealogic, the value of SPAC mergers stood at $35 billion so far this year, compared to approximately $231 billion at this time last year
- The CNBC SPAC Post Deal Index, which includes SPACs that have completed mergers, has dropped 44.8% in the last year and 20% in 2022 alone
Regulation At The Corner
The Securities and Exchange Commission unveiled a slew of new restrictions for SPACs on March 30, 2022. The proposed new rules would be one of the boldest measures to date to rein in the hot SPAC market.
Investors have criticised SPACs claiming that the firms overstate the business outlooks of the companies they seek to purchase. Additionally, investors are concerned about dilution as unclear SPAC processes can allow it to issue more stock.
- The SEC's new standards will address complaints about missing information, insufficient safeguards against conflicts of interest and fraud
SEC Chair Gary Gensler said in a statement: “Functionally, the SPAC target IPO is being used as an alternative means to conduct an IPO, Thus, investors deserve the protections they receive from traditional IPOs, with respect to information asymmetries, fraud, and conflicts, and when it comes to disclosure, marketing practices, gatekeepers, and issuers.”
- In 2021, SPACs listings bringing private companies public have contributed to a record IPO year representing over 59% of total new listings
- As rising rates and regulatory scrutiny have hammered the SPAC market since the new year, new listings, like Hypebeast, are expected to be that of large and profitable companies considered as “must-own” names in their industries
- Yet, it remains unclear whether already profitable companies would prefer to go public through a SPAC rather than a direct or conventional listing as SPAC-related regulation increases
Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.
Photo by Alec Ohlaker on Unsplash.