"The traditional PE model is stale and battling with an ever increasing amount of regulations and complexity," says Greg Voigt, chief investment officer at special purpose acquisition company M-FiTEC that listed on the JSE’s AltX board at the end of last year. We spoke to him about the advantages of a SPAC over other financing forms, the opportunities for FinTech in South Africa and his ambitions with M-FiTEC.
"We would love to talk to companies in the payment space, in the platform space, traditional software and services, medical transactions, smart biometrics for identification, etcetera. I call it fire - finance, insurance and real estate."
"Money can only provide so much to these companies. What we also give them is referencability and transparency."
Why a SPAC?
"I have worked in private equity pretty much my whole career, but in my opinion the traditional PE model is stale and battling with an ever increasing amount of regulations and complexity. The way we used our SPAC is as a financial innovation in the PE world. Investors in the public market can co-invest with a group of experienced private equity experts. I am very glad to say that what we have managed in a short space of time has been impressive. We have listed in less than 3 months. No matter how you theorise, there is nothing quite like trying it."
How is your SPAC unique?
"Although five SPACs have recently listed at the JSE, we are one of at most three vanilla SPACs. Renegen, the first one, was really just about allowing access to a private asset. The model we chose is a hybrid model of PE and the public market, focussing on finance and technology, which is an area with lots of growth."
What are the advantages of using a SPAC?
"It is a very efficient and cost effective way to raise capital and you can do things at speed. For the investor the liquidity position is also better, as you are not bound by a ten-year lock in, which is usually the case in private equity. It also allows for partial exits, which makes it more flexible than PE. Acquisitions are not locked in a time frame with a looming exit horizon. With PE that is the case and just when companies are getting to scale the investors have to exit because of an artificial deadline. The SPAC directors also have a mandatory co-investment obligation, which means they must have some relevant experience. Investors also have peace of mind because the SPAC has to stick to the acquisition modality it has committed to, in our case finance and technology."
What has the interest been like?
"We have been fortunate to see a lot of institutional investors. Because SPACs are very new and there is a lack of familiarity, they want to hear us out first. But I can say investors are excited about the opportunity and we have a lot of soft commitments. It is new so there is always suspicion and concern. What is the catch? But many investors believe this could become an interesting new model."
Now the SPAC is listed, what will happen next?
"Our company is built to operate acquisitions, not to flip them. We really wanted a minimum of initial capital in the company and came out at R76 million, a little higher than the JSE's Alt-X minimum of R50 million. At the JSE you're not allowed to come in with signed deals, hence the soft commitments. For now there is no trade. When we make our first acquisition and raise capital, you will see a lot of activity. We have to get the sequencing of acquisitions right. A SPAC is a cocoon. After the acquisition we emerge and fly off. Only after we make your first big acquisition we become what we're going to be, whether it is an IT company or an investment holding group. We want to announce our anchor acquisition within 6 months and not later than 9 months. You're allowed 2 years in terms of SPAC rules to achieve this."
What companies are you looking to acquire?
"We are looking at technology companies that are oriented towards finance, for example companies retrofitting bank systems. I have sympathy for the banks, because consumers are expecting newness, smart phones and tablet apps and on the other side they have a regulatory environment that makes it impossible to innovate. It is a double whammy."
"We are open for business now. We would love to talk to companies in the payment space, in the platform space, traditional software and services, medical transactions, smart biometrics for identification, etcetera. I call it fire - finance, insurance and real estate."
"The anchor investment needs to be fairly substantial. In general, we will go after businesses valued between R20 million and R200 million. Those will mainly be companies that are in a low earth orbit and are doing fine, but need a slingshot into a more appealing orbit. Money can only provide so much to these companies. What we also give them is referencability and transparency."
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