Security

SPACS: The 800-pound Gorilla in the PropTech Room

In the same week in July, two more special purpose acquisition company (SPAC) mergers in the smart building security space wrestled with this alternative IPO approach. First, Crown Proptech Acquisitions failed in their attempted merger with access control firm Brivo after the deadline passed before they were able to raise the funds required. Then, 5 days later, Taiwanese video surveillance firm, Gorilla Technology, announced their entry to the Nasdaq exchange with a short-lived share price rise followed by a sharp decline that has drawn doubt over their future. There is growing concern around the SPAC approach. “SPAC deals rocketed to popularity as an under-the-radar way to take companies public after high-profile flameouts of traditional IPOs, such as WeWork’s in 2019. Years of cheap borrowing followed by government responses to the pandemic had kept capital markets flowing,” writes Orion Jones for The Real Deal in New York. “But a merky track record for SPAC investors combined with rule […]

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In the same week in July, two more special purpose acquisition company (SPAC) mergers in the smart building security space wrestled with this alternative IPO approach. First, Crown Proptech Acquisitions failed in their attempted merger with access control firm Brivo after the deadline passed before they were able to raise the funds required. Then, 5 days later, Taiwanese video surveillance firm, Gorilla Technology, announced their entry to the Nasdaq exchange with a short-lived share price rise followed by a sharp decline that has drawn doubt over their future. There is growing concern around the SPAC approach.

“SPAC deals rocketed to popularity as an under-the-radar way to take companies public after high-profile flameouts of traditional IPOs, such as WeWork’s in 2019. Years of cheap borrowing followed by government responses to the pandemic had kept capital markets flowing,” writes Orion Jones for The Real Deal in New York. “But a merky track record for SPAC investors combined with rule changes and increased borrowing rates have complicated the picture. Among derailed SPAC dreams: Fifth Wall’s decision to not pursue a second such deal, and Goldman Sachs’ exit from the SPAC market all together.”

July 9th 2022 was the deadline for New York property moguls, the Chera Family, to consummate the SPAC merger through Crown Proptech Acquisitions, led by CEO Richard Chera. The group had announced the merger with Brivo, specialist in card-swipe and keyless-entry technology, but did not have $95 million in unrestricted cash, which would have allowed it to release an additional $75 million from investors and complete the merger. An SEC filing noted that after the merger deadline expired, $68 million in investment commitments were withdrawn by Golub Capital, an investor otherwise ready to close the deal, TheRealDeal writes.

The Gorilla Technology IPO, on the other hand, was completed on July 14th, through a SPAC merger with dedicated “blank check company” Global SPAC Partners Co., but it wasn’t long before the cracks began to show. Gorilla is best known for its edge AI technology, the company holds 31 patents related to solutions available across hardware platforms, AI models, appliances, and software services. Sales are dominated by a range of video-centric and content management solutions for smart cities, smart retail, and enterprise security. Gorilla also offers cybersecurity through their Security Convergence Platform aimed at government institutions, telecom companies and private enterprises seeking network surveillance. 

Gorilla’s status is best reflected by its list of technology partners, which include big hitters like Softbank, Intel, and Dell, among others, and by its broad client base, which includes the likes of ExxonMobil, Danone, AIS, Auresys, & MasterCard. Gorilla also has a history of funding from reputable international investors, including SBI Group, Acer, Telstra Ventures, Asteria, and tech partner Dell. All the makings of a strong public company that may have continued on the steady route through a traditional IPO, but elected for the less cumbersome private investment in public equity (PIPE) financing through a SPAC merger.

“Today marks a new journey for all at Gorilla,” stated Jay Chandan, former Chairman of Global and now Executive Chairman of Gorilla in the official announcement, adding, “We are especially encouraged by the PIPE financing consisting of equity, which has afforded us the opportunity to avoid a complex structured financing, all too common in the current challenging environment We are all incredibly elated about this journey and firmly believe the best is yet to come.”

Under the ticker symbols “GRRR'' and “GRRRW”, Gorilla’s shares rose to $36.22 in their first three days of mid-week trading, however, when markets opened on the first Monday of the 4-day-old public companies life, the firm’s shares plunged 44% and finally stabilized around $12 below the initial opening price of $14.95. The SPAC merger is expected to provide cash funds from Global’s trust account and $41.9 million from PIPE subscriptions. At the time of the IPO, Gorilla stated that proceeds would be used for working capital, business growth, international expansion, and other general corporate purposes. We can expect that the internal discussion at Gorilla is now evolving.

SPACs have been an emerging force in the wider smart buildings industry. Smart window company View, completed a SPAC merger with the support of Softbank and others in 2021. One year on and the now public company has been given an official notice by NASDAQ and could, reportedly, run out of money by November this year. Security firm Latch also went public in 2021 through a SPAC merger and in 2022 they have already gone through two “workforce reductions” and parted ways with CFO Garth Mitchell during an executive shake-up in April. Each story compounds the concern around the SPAC route to market.

“2021 was the year of the SPAC, but amid the craze of young companies coming public through SPAC mergers, there were many that were money losers for investors. There were even SPACs that brought companies without any revenue to the public markets, and those proceeded to hurt shareholders too. While the majority of SPAC mergers were not good investments, there were a few potential diamonds in the rough,” writes Jamie Louko at the Motley Fool when highlighting stocks of AI building energy solution provider Stem.

“Stem is one young company that came public in 2021, and its shares quickly flew up to $50 before falling back around the SPAC price of $10. With Stem's lack of financial stability and optimistic outlook, it's not for the faint of heart or investors looking for a reliable and steady investment. This is a "swing for the fences" stock, but one that -- if successful -- could be incredibly lucrative,” Louko added. “If it can capitalize on its leadership position with strong AI as the energy space expands, Stem could reward patient and risk-tolerant shareholders immensely in 10 years.”

Hardly a groundbreaking review for our “diamond in the rough” of smart building SPAC success stories, but maybe this is a long and risky game that pays off in the end. Only time will tell. On the other hand, maybe the transparency, due diligence, and other cumbersome processes involved in the traditional IPO approach are not just barriers to entry but measures also designed to protect companies, employees, and investors. The traditional SEC filing process is restrictive and costly, but maybe the smart building industry’s most ambitious and impatient companies could apply some of the same cautious principles before making the SPAC decisions. 

“This significant milestone presents a huge opportunity for Gorilla on a global stage. It elevates Gorilla’s innovation capabilities to a global audience,” said Tomoyuki Nii, former Chairman and current director of Gorilla Technology Group in the IPO announcement. “I would like people to look back and know that this was the turning point in our business.”

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