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A Quick Take On LatAmGrowth
LatAmGrowth SPAC (NASDAQ:LATG) has sold $130 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 the high growth or technology sectors located or serving the Latin America region, more particularly the emerging middle class.
Given the management team’s lack of SPAC track record and the uncertainties facing the Latin America region over the near-term due to a rising U.S. interest rate environment, I’m on Hold for LATG.
LatAmGrowth Sponsor Background
LatAmGrowth has 2 executives leading its sponsor, LatAmGrowth Sponsor LLC.
The sponsor is headed by:
– Chairman of the Board Eduardo Cortina, who is Co-Managing Partner of Colony LatAm Partners, soon to be called SouthLight Capital.
– Chief Executive Officer Gerard Cremoux, who was previously the Head of Investment Banking for Latin America and UBS Investment Bank.
The SPAC is the first vehicle by this executive group.
LatAmGrowth’s SPAC IPO Terms
Mexico City, Mexico-based LatAmGrowth sold 13 million units of units of stock and warrants at a price of $10.00 per unit for gross proceeds of approximately $130 million, not including the sale of customary underwriter options.
The IPO also provided for one-half of one warrant per share, exercisable at $11.50 per share on 30 days after the completion of the firm’s initial business combination and expiring five years after the completion of its initial business combination or earlier upon redemption or our liquidation.
The SPAC has 21 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 7.9 million warrants at $1.00 per warrant in a private placement. Each warrant will entitle the sponsor to purchase one-half share of Class A common stock at $11.50 per share.
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 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 LatAmGrowth
While the SPAC is focused on Latin American companies, it has wide leeway to merge with virtually any type of company, subject to shareholder approval.
The management team has extensive experience in financial services but does not have strong operating backgrounds in technology companies, a notable aspect of the SPAC.
Investing in a SPAC before a proposed business combination is announced is 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 investing is similar to a venture capital fund, 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.
Also, unlike a venture capital fund, a SPAC is liquid, providing public investors with an added liquidity benefit should they need to sell.
In the case of this particular management group, there is no previous SPAC track record, which is a negative.
Also, while the Latin American market is dynamic and has periods of strong growth in its history, the region is subject to significant capital inflows and outflows.
Currently, with the U.S. Federal Reserve raising interest rates to combat inflation, it has the strong potential to remove capital from emerging markets, making it more difficult and costly to obtain capital for market participants across a range of industries.
This may impact valuations which may help the SPAC on the acquisition side, but hurt the business’ prospects for growth in the near-term.
Additionally, Latin American currencies tend to fall against the US Dollar especially steeply during US interest rate rise periods, subjecting investors in the SPAC/Company to significant currency translation risk.
Given the management team’s lack of SPAC track record and the uncertainties facing the Latin America region over the near-term, I’m on Hold for LATG.
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