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Grab’s record breaking SPAC merger left more than $2 billion on the table

Food delivery riders get ready for a delivery outside a shopping mall, amid the coronavirus disease (COVID-19) outbreak in Singapore, May 26, 2020.
Reuters/Edgar Su
Super app.
By John Detrixhe
Published Last updated

Grab’s record-breaking deal to merge with a special purpose acquisition company (SPAC) will raise an eye-popping $4.5 billion in cash. Based on where shares are trading, the ride-hailing, food-delivering super app might have been able to raise a few billion dollars more.

A quick recap: Singapore-based Grab is poised to have a market value of around $39.6 billion after it combines with a SPAC called Altimeter Growth. Altimeter is basically a $500 million pot of money listed on Nasdaq that was looking for a target to merge with (which is why SPACS are sometimes called “blank check” companies). As is common with these kinds of deals, there are two prongs to the transaction—the $500 million SPAC, and $4 billion from big-time investors (known as a private investment in public equity, or PIPE) like T. Rowe Price and Fidelity.

It looks to be a nice deal for the big-time investors. The SPAC shares are trading at about $15, while the PIPE investors got in at $10. For Jay Ritter, a University of Florida professor and IPO expert, it resembles a traditional listing that left a bunch of money on the table. “This is a big deal, but it’s also very equivalent to doing a traditional IPO that was severely underpriced,” he said. Based on the number of shares and prices they are trading at, it appears the market might have been willing to bestow Grab with more than $2 billion in funding.

Indeed, one of the biggest gripes about the IPO process is that investment banks tend to price shares too low in order to reward big money managers like T. Rowe Price and Fidelity. “This is the equivalent to Grab doing an IPO, and selling shares for $10 that jumped to $15,” Ritter said.

Why Grab went public through a SPAC

Altimeter Growth shares have climbed to $15 from $13.95 before the deal was announced, suggesting stock market investors like the merger. Grab is unlike any company in the US or Europe. It started out in 2012 as a ride-hailing service and has morphed into a sort of a Southeast Asian digital conglomerate: Users can also order food, groceries, or tap into financial services through the app, which the company says has more than 214 million downloads. The combined company will trade under the ticker GRAB when the transaction is completed in the coming months

Grab says it has a major tailwind as online penetration in Southeast Asia, with a population twice that of the US, accelerates. The company claims its addressable market will triple from 2020 to more than $180 billion in 2025.

There are some advantages to Grab going public via SPAC. For example, it gives investors certainty about Grab’s valuation, said Adam Birnbaum, executive director at GP Bullhound. The SPAC market, which is more speculative in nature, may be a good fit for such a unique company, which resembles Uber, Deliveroo, and Citigroup put together and is perhaps harder to value. “This is the kind of company that lends itself to the SPAC market,” Birnbaum said.

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