Seyond may get stuck in slow-moving SPAC lane to Hong Kong listing

The maker of autonomous driving LiDAR sensors has agreed to a backdoor-listing deal under a 3-year-old Hong Kong SPAC program that has yet to gain much traction
Key Takeaways:
- Seyond has agreed to merge with TechStar, a special purpose acquisition company (SPAC), to go public through a backdoor listing in Hong Kong
- Listing through Hong Kong’s 3-year-old SPAC program has proven difficult due to tough requirements and investor caution
By Warren Yang
A new company banking on the promise of self-driving cars is shifting gears to drive onto Hong Kong’s stock exchange. But despite a flurry of similar new autonomous driving listings in both the U.S. and Hong Kong this year, this one by Seyond Holdings Ltd. probably isn’t in for a joy ride and instead may get stuck in a slow-moving lane on its trip to market.
Last Friday, a special purpose acquisition company (SPAC) named TechStar Acquisition Corp. (7855.HK) said it signed an agreement to merge with Seyond, a U.S.-based maker of light detection and raging (LiDAR) sensors, key components for autonomous driving. In theory, the deal should give Seyond a shortcut to list in Hong Kong, as it will simply inherit TechStar’s spot on the city’s bourse when the merger is complete.
SPACs are shell entities that have no real business and simply serve as vehicles for real companies to go public through reverse mergers, bypassing many of the cumbersome requirements for traditional IPOs. Their relatively hassle-free nature has helped SPAC deals to proliferate in the U.S. in recent years, especially among cash-strapped tech startups.
But how quickly Seyond will reach its final destination on Hong Kong’s stock exchange, if at all, is anything but certain. Hong Kong introduced its SPAC program at the start of 2022 as it sought to replicate the U.S. boom for such listings and reinvigorate its equity market, which was still reeling from the aftermath of the Covid-19 pandemic.
The backdoor listing scheme in Hong Kong, however, has hardly taken off. The first-ever completion of a SPAC merger only occurred in October this year, involving Synagistics Ltd. (2562.HK), a Singapore-based e-commerce company. That deal moved relatively quickly, crossing the finish line months after it signed a SPAC merger agreement. But a couple of other SPAC merger transactions seem to be stuck.
One is the pending marriage between ZG Group and Aquila Acquisition Corp. (7836.HK). Aquila made headlines when it became Hong Kong’s first listed SPAC in March 2022. It disclosed plans to merge with ZG in the summer of last year, fueling expectations that the steel-trading platform operator was on its way to becoming the exchange’s first company to go public through a SPAC transaction. Back then, Aquila predicted that the deal would close in the fourth quarter of 2023.
But that time has long since come and gone with no progress, probably due to delays in obtaining required approval from China’s securities regulator. Aquila finally filed a listing application with the Hong Kong Stock Exchange in March this year, seeming to indicate completion of the transaction was imminent. But nine months later the deal has yet to close.
One reason for such lengthy delays may be Hong Kong’s strict vetting process for SPAC deals to prevent bad apples from using the program to spoil the local stock market. In a filing early this month to report the hiring of banks to handle the merger with Aquila, ZG warned that the deal has yet to be approved by either the Hong Kong Stock Exchange or the Securities and Futures Commission, the city’s securities regulator.
Cautious stance
Reflecting Hong Kong’s cautious approach, the stock exchange only allows professional investors to invest when the initial SPAC company goes public and is still just a listed shell. By comparison, the U.S. program allows anyone to invest in such SPACs. Investors in Hong Kong are already rather conservative, which has made it difficult for SPACs to raise capital.
It also doesn’t help that a SPAC in Hong Kong must have a net asset value of at least HK$1 billion ($129 million) at the time of the listing, which creates a high threshold for entry. A combination of all these hindrances means that only a handful of SPACs exist in Hong Kong.
Time is running out for ZG as its SPAC partner, Aquila, only has until March next year to complete their merger. That’s because under Hong Kong rules, a SPAC must find a merger partner and sign a deal within 24 months of listing and complete the merger within 36 months to avoid dissolution.
TechStar was listed in December 2022, so it barely met the 24-month requirement with its merger announcement with Seyond. This may lead some to wonder if it went for a less-than-ideal partner as it faced pressure to find a target by the deadline.
TechStar didn’t disclose much about Seyond’s financials, and what it did reveal wasn’t so impressive. The SPAC touted that Seyond was No. 1 in sales of passenger vehicle LiDAR products in 2023, citing third-party data. Seyond’s investors include Temasek, Singapore’s sovereign wealth fund, which helps build its credentials. But the company’s revenue growth appears to have cooled quite quickly.
According to TechStar’s filing, Seyond’s annual revenue jumped 83% to $121 million in 2023 from the prior year. But it only started generating meaningful revenue in 2022, with its 2021 revenue amounting to only $4.6 million. So, it seems like the company ramped up its production only in 2023, although it was founded as far back as 2016.
For emerging tech companies, a long lead time for revenue generation isn’t unusual as development and achieving mass-production capabilities take a while. For Seyond, though, it seems like its revenue growth hit the brakes this year. Its revenue for the first half of 2024 totaled about $66 million, or just a little more than half of what it earned in the whole of last year. Worse yet, Seyond’s net loss is widening, from $188 million in 2022 to $219 million last year.
At this point, there’s no guarantee that the TechStar-Seyond marriage will pass the muster of Hong Kong regulators. And savvy investors may raise questions about Seyond’s long-term prospects. Another LiDAR company, Hesai Group (HSAI.US), which is also unprofitable, went public in February last year in the U.S., but its shares are down more than 40% from their IPO price and currently trade at a relatively modest price-to-sales (P/S) ratio of 6.4. Another LiDAR company, Hong Kong-listed Robosense (2498.HK), trades at a slightly higher P/S ratio of 8.1.
The merger with TechStar values Seyond at HK$11.7 billion ($1.5 billion), more than 12 times its 2023 revenue and well ahead of both Hesai and Robosense in terms of P/S ratios. Such a high valuation, coupled with Seyond’s apparently slowing revenue growth, suggests that the company may be a tough sell for investors, not to mention the regulators who still must give it their final green light to complete its Hong Kong listing.
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