VERTEX Technology Acquisition Corp (VTAC), Singapore’s pioneering special purpose acquisition company (Spac), announced its intention to merge with 17Live Holding Ltd (17Live) and acquire all issued share capital of 17Live Inc. This charts a significant development in the Spac landscape.

As Singapore’s first Spac, VTAC made its market debut on 20 January 2022 amid a global interest in blank-cheque companies. With an initial public offering (IPO) price set at S$5 per share, it succeeded in raising S$208 million in gross proceeds. IPO participants received one ordinary share plus a fraction of a warrant per share.

This article aims to share vital considerations for retail investors who have engaged with VTAC from its IPO and those considering participation, especially in light of guidelines highlighted by the Singapore Exchange (SGX) and CFA Institute.

Overview of the business combination

According to a VTAC’s press release in October, 17Live is the leading live streaming platform by revenue in Japan and Taiwan, and is poised for growth with multiple drivers, including an innovative “V-live” category and an expanding repertoire of live commerce and in-app games. Despite recording a significant profit in FY2021, 17Live incurred losses in FY2022.

VTAC has endorsed the merger, citing 17Live’s strong management, the potential for scale, and its alignment with Vertex Holdings’ areas of expertise.

Vertex Spac is slated to convene an extraordinary general meeting (EGM) to deliberate over this proposed business combination. Notably, 17Live has opted to roll over their equity, indicating a strong belief in the merged entity’s future.

Retail investors with VTAC shares from IPO

Since the IPO, VTAC’s share price has fluctuated less than the volatility experienced by Spacs in other markets. The daily transaction volume has seldom breached the 100,000 mark, indicative of a relatively steady interest from the market. With the acquisition announcement, existing investors have the following options:

• Buy more shares: An opportunity to augment your holdings is presented with additional share allotment for new subscriptions.
• Hold existing shares: In this particular transaction, holding onto your shares will automatically entitle you to additional shares as the merger progresses.
• Exercise warrants: As the current share price trades below the warrant exercise price, it is imperative to assess the long-term value proposition before opting to exercise the warrants.
• Sell existing shares: The stock market provides an exit option, albeit the price to some investors may not be as favourable as expected.
• Redeem shares for cash: Redemption offers a way to recoup your investment, although the exact amount may vary and is subject to the escrow account balance and applicable deductions.

For existing investors who choose to redeem shares for cash, it is imperative to know one’s rights and the deadline for redemption. Typically, the redemption process allows existing investors to recover their invested capital with a small interest, and you can still vote in favour of the merger despite your intention to redeem shares.

Due diligence considerations

When deliberating whether to redeem your shares or further invest in a Spac, conducting thorough due diligence is crucial. Here is a non-exhaustive list of key considerations:

• Understand the target company. Investors should understand what are its financials, market position, growth potential and risks. A deep dive into the company’s business model, leadership team and strategic plans can provide a clearer picture of its prospects.
• Evaluate the expertise of the sponsor. Is the sponsor an expert specifically in relation to the business sector of the target company? A sponsor with relevant industry knowledge and connections is more likely to steer the company towards success.
• Investigate the share sale restriction duration for the sponsor and other anchor investors. Commonly referred to as the lock-up period, this is indicative of the sponsor and other anchor investors’ commitment to the company’s long-term performance. These terms can signal investor confidence in the company’s value proposition.
• Scrutinise the sponsor’s track record. This includes the sponsor’s history in terms of operational management, mergers and acquisitions, and previous Spac ventures. A sponsor with a strong track record can be a positive sign, whereas one with a history of underperformance might warrant caution.

Taking the time to review these areas can help inform a more secure investment decision, ensuring that you are well-acquainted with both the potential rewards and inherent risks.

The VTAC and 17Live merger, while laden with potential, requires careful navigation by investors. Understanding the details of the de-Spac process, recognising the risks and considering the redemption option against holding shares post-merger are critical for informed decision-making.

Investors are encouraged to consult the SGX Investor Portal for detailed Spac share and warrant counts post-detachment; the CFA Institute Spac Crib Sheet documentation (to understand the key structural, risk and conflict issues); and familiarise themselves with their rights regarding redemption and voting in the upcoming EGM.

The writer is a member of the advocacy committee at CFA Society Singapore. The views expressed are his own and not those of his employer or any affiliated organisations.