What is a blank-cheque company & how did Grab strike a US$40 billion deal with it, explained

Mothership Explains: Grab is set to list in the U.S. via merger with a "blank cheque company" or SPAC. We take a look at what it is.

Joshua Lee | April 15, 2021, 04:54 PM

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Grab is set to go public in the U.S. with what Bloomberg called the "largest-ever merger with a blank-cheque company", estimated to skyrocket its worth to US$39.6 billion (S$53 billion).

A SPAC-tacular play

If you're like some of us at the office, you might be wondering what a "blank-cheque company" is.

"Blank-cheque companies" are known as special purpose acquisition companies (SPAC).

A SPAC is a shell company (meaning it has no operations) which is set up for the sole purpose of raising money from investors through an initial public offering (IPO) so that it can acquire a company in the future — typically within two years.

SPACs are called "blank-cheque companies" because their IPO investors typically don't know what company the SPAC will ultimately acquire.

Managing Director of capital fund Thomvesr Ventures described SPACs like so to Crunchbase News:

“You can think of it like: an IPO is basically a company looking for money, while a SPAC is money looking for a company.”

Confused? Here's an analogy.

John really wants to set up a F&B business. The trouble is he doesn't know yet what he wants to sell.

He approaches his friends for money to invest in his new business.

He tells them that he hasn't decided on what this business is, but he whips out his track record of acquiring businesses and turning them into popular F&B joints that generate a lot of profit — his friends are impressed and they decide to chip in.

A fast track to IPO

There are some benefits that a SPAC provides and you can read about them here, but in the case of Grab, the main attraction lies in the fast-tracked IPO process.

The traditional IPO route for a private company like Grab which wants to go public is usually long and arduous.

The stock exchange regulator and investors will scrutinise the company's financial statements to detect fraud. The company also has to spend time (and money) organising investor pitches and roadshows to publicise its IPO and attract both private and retail investors.

The whole process can take anywhere from four to six months to complete, reported CNBC.

When a private company gets acquired by a SPAC, however, the former gets a faster IPO process because the latter is already listed.

Let's return to John

Three months later, John comes across a home cook, Peter, who makes incredibly delicious steak sandwiches — so tasty, in fact, that John thinks they will be a hit with foodies, if Peter starts selling his sandwiches at say, a mall.

But Peter has no experience in running a business, and he doesn't want to go through the onerous and lengthy process of setting up a business.

But there is another way. John pays Peter for the right to sell his sandwiches. With John's funds and Peter's sandwiches, they partner to operate a stall at a mall called "Sandwiches R Us".

The sandwich business is owned by John, Peter, as well as the friends who invested money with John.

In the process, Peter gets to sell his sandwiches to the public (and earn lots of money because his food is so darn delicious) in return for giving up partial ownership of his business. John and his friends, on the other hand, get partial ownership of what is likely to be a very successful sandwich business in return for cash.

An accurate representation of Peter's *incredibly delicious* steak sandwich. Image via.

Secured US$4 billion in private investments

The SPAC which is merging with Grab is Altimeter Growth. It is owned by investment firm Altimeter Capital Management.

Grab said on April 13 that the merger will lead to a new holding company, of which both Grab and Altimeter Growth, will be subsidiaries.

It is this holding company's shares which will be traded on NASDAQ "in the coming months" according to Grab. It is expected to be worth US$39.6 billion (S$53 billion).

No word yet on its name, but we think that it's probably not going to be as fancy as "Sandwiches R Us".

What has been confirmed though, is that Grab will receive US$4.5 billion (S$6 billion) in cash from this deal.

This includes slightly over US$4 billion (S$5.3 billion) in private investments — or what is called Private Investment in Public Equity (PIPE) — from investment firms like Temasek and fund managers like BlackRock, and Altimeter Capital Management.

Yahoo Finance also reported that under a special corporate governance arrangement, Grab CEO Anthony Tan will have 60.4 per cent of voting power while owning a 2.2 per cent stake in the new entity.

Of shell companies and blank cheques

    All this talk about shell companies and blank cheques sounds terribly dubious but in actual fact, SPACs are quite above board, completely legal, and apparently, enjoying a boom right now.

    In fact, according to Reuters, SPACs raised US$99 billion (S$132 billion) this year alone compared to US$83 billion (S$111 billion) in 2020.

    But it’s not all roses with SPACs.

    A Financial Times analysis found that a majority of blank-cheque companies in the U.S. between 2015 and 2019 failed to raise their share price significantly.

    Some also claim that the way a SPAC is set up makes the business ripe for fraud — as was the accusation levelled against Nikola, an electric truck startup after it merged with a SPAC last year.

    Whatever the case, amid the current SPAC frenzy in the U.S., this will probably not be the last we hear of Asian tech companies taking the SPAC merger route to go public.


    Mothership Explains is a series where we dig deep into the important, interesting, and confusing going-ons in our world and try to, well, explain them.

    This series aims to provide in-depth, easy-to-understand explanations to keep our readers up to date on not just what is going on in the world, but also the "why's".


    Top image by Joshua Lee.