The Economist - USA (2022-05-21)

The Economist May 21st 2022 Business 61

Seeking purpose

United States, SPAC* initial public offerings

Source:Bloomberg

*Special-purpose acquisition company

†To May 16th

1

100

75

50

25

0

2019 20 21 22†

Proceeds, $bn

Completed/

liquidated

Announced

Searching

300

200

100

0

2019 20 21 22†

Number of deals

Stockmarketlistings

Where did the

cash go?

spacs raised billions for mergers.

As deals dry up, we follow the money

A

merican capitalismhas a special rev­

erence  for  large  numbers.  They  can

frighten  as  debt  or  reassure  as  backstops.

The  $260bn  raised  by  special­purpose  ac­

quisition companies (spacs) since the start

of 2020 lacks the multitrillion­dollar aura

of  federal  debt  or  America’s  pandemic

stimulus.  It  is  nevertheless  big  enough  to

have  become  a  defining  symbol  of  recent

market mania. 

spacs used to be a curious capital­mar­

kets  sideshow:  complex,  obscure,  hardly

novel.  A  conventional  initial  public  offer­

ing underwritten by investment banks was

the marker of corporate maturity; merging

with a pile of cash and entering the stock­

market  by  the  backdoor  was  not.  This

changed  when  stockmarkets  rallied  from

their  covid­induced  lows:  more  than  800

spacs raised capital between May 2020 and

December  2021.  Underwriting  fees  were

collected;  questionable  incentives  and

complexity remained. 

This  year  investors  appear  to  have  re­

membered why some disliked spacs in the

first place. Few new blank­cheque vehicles

are  being  listed.  Rising  interest  rates  are

chipping away at the present value of spec­

ulative  firms’  future  profits  and  invest­

ment banks are pulling back from this kind

of faddish financial engineering in expec­

tation of tough new due­diligence rules. 

At  the  same  time,  many  existing  spacs

are having trouble finding merger targets.

Indianbusiness

A new foundation

G

autamadaniisamanoffewwords

but,  as  Asia’s  richest  tycoon,  plenty  of

means.  On  May  15th  he  agreed  to  pay

$10.5bn  for  Ambuja  Cement,  India’s  sec­

ond­biggest  cement­maker,  controlled  by

Holcim,  a  Swiss  building­materials  behe­

moth.  Mr  Adani’s  terse  statement  accom­

panying  the  deal  belies  its  significance.  It

will  be  the  largest  outright  acquisition  of

an  Indian  company  since  Walmart,  an

American  supermarket  titan,  purchased

Flipkart, an Indian e­merchant, in 2018.

Ambuja was founded by Narotam Sekh­

saria, a Bombay cotton trader with a degree

in  chemical  engineering  but  no  back­

ground  in  cement.  He  managed  to  turn  a

commodity  into  a  consumer  product

through  a  clever  slogan  (“giant  strength”)

and an eye­catching logo (a giant clutching

a  building).  After  courting  Ambuja  for

years,  Holcim  succeeded  only  in  2005­07,

as Mr Sekhsaria’s health began to fail. 

Since  then  the  business  has  flailed.  In

the past decade, according to Kotak Securi­

ties,  a  broker,  capacity  at  Holcim’s  Indian

holdings expanded by less than 2% a year,

compared with a rate of 10% for UltraTech,

India’s biggest cement­maker, and 13% for

Shree Cement, an upstart. Holcim has not

disclosed  how  much  it  paid  for  its  Indian

venture.  One  analyst  puts  the  figure  at

around  $2bn.  Given  that  it  will  receive

$6.4bn  for  its  63%  stake,  this  would

amount to an adequate but unexciting an­

nual return of perhaps 8%. (The other $4bn

orsoMrAdaniispaying will go to Ambuja’s

minority shareholders.)

The deal is more favourable for Holcim

in  other  ways.  It  fits  in  with  the  firm’s

broader  shift  towards  a  greener,  less  ce­

ment­centric  business.  In  recent  years  it

has sold cement units in Brazil, Indonesia,

Malaysia, Russia, Sri Lanka and Vietnam. 

Critically,  it  shouldn’t  attract  antitrust

scrutiny, whereas success by one of the two

other bidders might well have raised trust­

busters’ concerns. UltraTech, controlled by

the Birla family, is India’s biggest cement­

maker.  The  Jindals’  jswGroup,  a  big  steel

producer, has a growing cement business.

The Competition Commission of India has

been looking into a possible cement cartel

since at least 2010. A case involving Holcim

is  before  the  Supreme  Court.  Another  in­

vestigation  was  reportedly  launched  in

2020.  As  part  of  the  sale,  Holcim  will  be
      spared from any judgment, its chief execu­
      tive, Jan Jenisch, told analysts. 
      But it was not solely because Mr Adani
      has no existing cement operations that he
      prevailed in the fight for Ambuja. What he
      brought  also  mattered.  The  Adani  Group
      owns power utilities, useful in running en­
      ergy­hungry kilns, and India’s biggest net­
      work of ports to ship the stuff. Its coal­fired
      plants  provide  a  by­product,  fly­ash,  re­
      quired  for  cement­making.  Most  impor­
      tant, the tycoon displays anuncanny abili­
      ty to raise capital. Paired withvaulting am­
      bition, it is a hard mix to beat. n

M UMBAI

Asia’s richest man cements his grip on India’s heavy industry