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A Quick Take On Keyarch
Keyarch Acquisition (NASDAQ:KYCH) has sold $100 million from an IPO at a price of $10.00 per unit, according to the terms of its most recent S-1/A regulatory filing.
The SPAC (Special Purpose Acquisition Company) intends to pursue a merger with a company in any sector but not with a company that has its primary business operations in China.
Management has no previous SPAC track record or technology company operating experience, two negatives.
I’m on Hold on the KYCH SPAC opportunity at this time.
Keyarch’s Sponsor Background
Keyarch has 2 executives leading its sponsor, Keyarch Global Sponsor Limited.
The sponsor is headed by:
– Chairman, Fang Zhang, who is the founder and CIO of Keywise Capital Management and has significant expertise in Asia market investing.
– CEO, Kai Xiong, who is a Managing Partner at Keywise, and has extensive financial markets experience.
The SPAC is the first vehicle by this executive group.
Keyarch’s SPAC IPO Terms
New York, NY-based Keyarch sold 10 million units of units consisting of one Class A share, one right and one-half of one warrant at a price of $10.00 per unit for gross proceeds of approximately $100 million, not including the sale of customary underwriter options or a private placement.
The IPO also provided for one-half of one warrant per share, exercisable at $11.50 per share 30 days after the completion of an initial business combination from the closing of an initial business combination, and expiring five years after completion of the initial business combination or earlier upon redemption or liquidation.
The SPAC has 18 months to complete a merger (initial business combination). If it fails to do so, shareholders will be able to redeem their shares/units for the remaining proceeds from the IPO held in trust.
Stock trading symbols include:
Founder shares are 20% of the total shares and consist of Class B shares.
The SPAC sponsor also purchased 450,000 units at $10.00 per unit in a private placement.
Conditions to the SPAC completing an initial business combination include a requirement to purchase one or more businesses equal to 80% of the net assets of the SPAC and a majority of voting interests voting for the proposed combination.
The SPAC may issue additional stock/units/rights to effect a contemplated merger. If it does, then the Class B shares would be increased to retain the sponsor’s 20% equity ownership position.
Commentary About Keyarch
The SPAC is interesting because management also added a ‘sweetener’ to the units in the form of one right per unit which entitles the owner of a unit to receive one-tenth of one Class A ordinary share upon the completion of its initial business combination.
This serves to incentivize the shareholders to vote in favor of the proposed business combination while diluting the share base somewhat.
The sponsor also purchased units in a private placement, as opposed to the more typical warrant purchase.
The sponsor’s senior management has extensive capital management and financial markets experience but no previous SPAC performance track record.
The managers also have no discernible technology company operating experience.
Investing in a SPAC before a proposed business combination is announced as essentially investing in the senior executives of the SPAC, their ability to create value and their previous SPAC track record of returns to shareholders.
The cost of that investment is roughly the same, 20% of the upside to the SPAC sponsor, but the time frame for realizing a significant gain can be far faster, a 1- to 3-year time period for a SPAC versus 10 or more years for a typical venture capital fund.
In the case of this particular management group, the lack of a previous SPAC track record and lack of previous operating experience in a technology business are both negatives.
As a result, my outlook on KYCH is a Hold.
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