Mercado Livre and Kaszek launch SPAC, eyeing technology companies in Latin America

(Disclosure/Free Market)

SAO PAULO – The e-commerce giant Mercado Livre (MELI34) and the investment fund Kaszek are sponsoring a new investment company. THE Special Purpose Acquisition Company (SPAC) is called MELI Kaszek Pioneer Corp, and has filed an initial public offering (IPO) on the Nasdaq stock exchange. It will be 25 million shares of Class A common stock, at a starting price of $10 per share.

The objective of the new investment company is “to accelerate the development of the digital ecosystem in Latin America”, according to a statement about the launch of SPAC. The company has a “blank check” to invest in a technology company in the region. MELI Kaszek Pioneer Corp intends to complete the acquisition of this target company within two years of the IPO.

The vehicle is the fifth SPAC with an eye on technology in the region (Softbank, Valor Capital, Alpha and XP have launched initiatives). The expectation is that the “MEKA” (SPAC trading code) will be priced within two weeks.

Mercado Livre and Kaszek have a common history. Kaszek was created in 2011 after Hernan Kazah and Nicolas Szekasy left Mercado Livre. The e-commerce giant’s former COO and CFO combined their last names to create the fund. The goal is to use the pioneering experience on the internet to foster more startups across Latin America. Nicolas Berman, Santiago Fossatti, Andy Young and Mariana Donangelo complete the team.

The fund accumulates 91 invested startups. Nine of them are unicorns, or startups valued at at least $1 billion. Credits, Gympass, Kavak, Loggi, MadeiraMadeira and Nubank are some examples. Fossatti recently spoke with From Zero To Top, entrepreneurship brand of InfoMoney, about a $1 billion fundraising for Kaszek to invest in more startups in Latin America.

BofA Securities, Goldman Sachs & Co LLC, Allen & Company LLC and JP Morgan are to coordinate SPAC’s IPO.

What are SPACs?

SPACs (Special Purpose Acquisition Companies), or special purpose acquisition companies, are companies that only serve to buy other companies and go public without going through the slow, uncertain, long, painful and risky process of traditional IPO.

The process boils down to the creation of a legal entity by the sponsor, which goes public on the stock exchange. This company is just a shell, or shell company. With the cash on hand, she goes hunting for a company that is not yet listed, closes a deal with the target company, and merges with it. SPAC ceases to exist and the shares listed in the shell company come to represent that of the acquired company.

Anyone who buys shares in a SPAC, therefore, needs to trust their team’s ability to find and acquire a good company. It’s like giving a manager a blank check. The risk is high, but in an environment of very low or negative interest rates, there are investors willing to do so.

In 2016, 13 SPACs went public. The number was very small, as SPAC at that time was still considered the last resort of companies that could not make a traditional IPO. In 2019, the number was already 54, but in 2020 the pace accelerates even more, to 248. The number was surpassed only in the first three months of 2021, which had more than 300 SPACs.

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