James Murdoch-Uday Shankar ditch SPAC route for their M&A ventures

Seven Islands will now make their investments through Bodhi Tree Systems

Seven Islands Inc, a special purpose acquisition company (SPAC) sponsored by James Murdoch and former STAR India CEO, Uday Shankar, has decided to abandon its earlier plan to raise $300 million through an initial public offering (IPO) in the US.

The blank-check company was registered sometime in May last year to focus on acquisitions in southeast and south Asia in areas ranging from media and entertainment, consumer technology, healthcare and education, with India as a key country in this regard.

SPACs are formed by sponsors to raise money through an IPO, which is then used to acquire or merge with a target company within 24 months. If a target company is not found, the money is returned to the investors and the SPAC is dissolved.   

Sources close to Seven Islands say that Murdoch and Shankar decided not to pursue the SPAC route as they were interested in acquiring and building companies rather than pulling out after taking them to an IPO. 

Uday Shankar was unavailable for comment.

Sources say that the company has now decided to make its investments through investment company Bodhi Tree Systems, in which Shankar, James Murdoch (through Lupa Systems) and others have a stake. Bodhi Tree Systems has been involved in picking up stakes in various companies. These include investing $600 million for a strategic stake in Allen Career Institute, based in Kota, Rajasthan, and pumping in $1.78 billion in Viacom 18, which will continue to have Paramount as a partner.

Shankar and Murdoch are not the only ones who have looked at the SPAC route for listing. Many Indian startups did so last year, including Byju’s and Grofers, but later changed tack.

Some India-sponsored SPAC players are going ahead, though. In October this year International Media Acquisition Group (IMAC), a SPAC sponsored by Shibasish Sarkar (formerly with Reliance Anil Ambani ) struck a deal to acquire Reliance Entertainment Studios and Risee Entertainment.

The deal includes $102 million in cash and $38 million in investment spread over tranches. IMAC was set up to raise $200 million through an IPO.  The details of the deal are currently being scrutinised by the Securities and Exchange Commission (SEC) and the process might take three to five months.

However, the boom in SPACs, which were seen as a quicker, cheaper and more efficient way to go for an IPO, seems to be over now. With many SPAC companies seeing their shares plummet after their IPOs, the SEC has now imposed even tougher rules to rein them in. The latest is a 1 per cent federal tax on share repurchases, which is only speeding up the liquidation process.

According to SPAC Research, in December to date, 65 SPACs in the US have been liquidated and have returned their money, compared to only 13 last month. And the number of  SPAC IPOs is down to a mere two this month. 

Acquisition over IPO

• Murdoch-Uday Shankar want to acquire and build a company, rather than pull out after an IPO
• Many start-ups in India had looked at this route during the SPAC boom, but decided not to follow through
• IMAC is going ahead with its SPAC company and plans to use it to acquire Reliance Entertainment Studio and Risee Entertainment
• The US SPAC market is in a tizzy with over 65 SPACs getting liquidated in December