SPAC is a company with no commercial operations that is formed strictly to raise capital through an initial public offering (IPO) for the purpose of acquiring an existing company.

Special Purpose Acquisition Companies (SPACs) are trending in Mena, which indicates that the startup ecosystem is evolving into a stronger and resilient sector, attracting global players and giving a boost to regional talent.

SPAC is a company with no commercial operations that is formed strictly to raise capital through an initial public offering (IPO) for the purpose of acquiring an existing company.

The first half of 2021 witnessed Anghami, the leading music streaming platform in the Middle East & North Africa going public by merging with a SPAC. The SPAC Anghami merged with is Vistas Media Acquisition Company which is led by F. Jacob Cherian and co-founders Saurabh Gupta and Abhayanand Singh.

The second startup was Swvl, a Dubai-based provider of mass transit and shared mobility solutions, and Queen’s Gambit Growth Capital, the first Spac led by women, entering into a definitive agreement for a business combination that would result in Swvl becoming a publicly-listed company. With an implied, fully-diluted equity value of approximately $1.5 billion, Swvl is expected to be the first $1 billion-plus unicorn from the Middle East to list on New York’s Nasdaq and the only tech-enabled mass transit solutions company to list on any stock exchange. The transaction is expected to close by end of the fourth quarter of 2021.

Saurabh Gupta, co-founder and board member of Vistas Media Acquisition Company Inc, VMAC (the SPAC that is taking Anghami public on Nasdaq) said: “The region will increasingly gain importance across multiple sectors (such as consumer tech, healthcare, fintech and edutech) for SPAC sponsors to target business combinations with local homegrown ventures that have been backed by credible venture capital, private equity funds and visionary Government support over the years. With first the Anghami announcement earlier in March and now with Swvl going public on Nasdaq through a SPAC, we will surely see many more such deals being announced over time.

“Within the region, some of the largest sovereign wealth funds and local asset managers are now actively looking at listing their own SPACs, which is a clear indicator of the exciting times ahead for local deserving entrepreneurs and backers to go public through SPAC listings and access to growth capital from the top exchanges of the world. The whole ecosystem from start to exit is all falling into place now for the regional companies to become more global.”

The three top regions that are leading and complementing the regional growth are the UAE, Egypt, and Saudi Arabia.

Vijay Tirathrai, managing director of Techstars, said: “There is no doubt the SPAC craze is here. Svwl and Anghami are just the beginning. For a handful of ME high-growth tech companies, it’s a fast route to tap public markets. I believe we will see the emergence of SPACs in the region in the near future. Particularly so for ME companies listing on NASDAQ or NYSE, partnering with an amazing investor(s) raises their investment profile as well as its an efficient way for going public with greater speed and certainty on timelines and pricing of the deal. Hence, a SPAC deal typically helps the management team stay focused on the business when compared to traditional IPOs. Because of its stability, speed, and strategic partnerships, despite the increased costs associated with sponsor fees, I would say the attraction to international SPACs for ME companies is the overwhelmingly higher valuation the company can receive when compared to listing on the local bourse.”

Endorsing a similar view, Saudi-based, Omar A. Almajdouie, founding partner at Raed Ventures, said: “SPACs are a great opportunity for Mena startups to raise large amounts of capital in a region lacking in large growth stage VCs. It is also a way to raise capital without going through lengthy negotiations with multiple investors, compromising on rights, and reducing valuations. Finally, in a market with sparse M&A activity, SPACs are a great avenue for early investors to liquidate their assets. We are likely to see more SPACs in the region.”

Tech companies in the Mena region have little exit routes and usually settle for trade sales (when possible) to strategic international companies, losing their independence and brand in the process, explains Dubai-based Walid Mansour, a venture capital professional.

“SPACs offer a faster route to liquidity for companies looking to scale beyond the offering of early-stage investors in Mena listing on major exchanges will give them proper governance and market-driven valuations and expectations to proceed. Having gone through the first-ever SPAC deal in Mena — VISTA ANGHAMI merger — I can see the pros and cons of the process and encourage tech companies able to handle the baggage that comes with it to consider it. My dream now is to more see successful listings in our region,” added Mansour.

Swethal Kumar, CEO of Startupscale360 and co-founder of The Crossroads, said: “Being a young startup ecosystem, the Middle East has the advantage to attract various blank-check companies to find the right target for them. We will have many startups from this region gradually moving towards a $500 million plus valuation. Why SPAC is becoming increasingly interesting because it usually occurs in 3–6 months on average, while an IPO usually takes 12–18 months. In addition, IPO price depends on market conditions at the time of listing, whereas one can negotiate the pricing with the SPAC before the transaction closes. This also opens a door for an existing investor to exit early.