The Clap
SWVL just made history by listing on the NASDAQ.

That’s why we kicked off a four-part series throughout the week to dive deeper into the details of how SWVL transported its way here.

We reached out to SWVL CFO Youssef Salem, who is set to become the youngest CFO on the NASDAQ once the listing is complete, for exclusive comments to Thndr Claps.

What are SPACs?
SPACs are companies with no business operations. Their sole purpose is to raise funds in an IPO & go find a “target company” to acquire or merge with. That way, the target company goes public while avoiding the hassle of the process of a traditional IPO. SPAC companies typically have 18-24 months to identify a target company, or else the money goes back to investors.

SWVL’s SPAC
The SPAC merging with SWVL is a company in the name of Queen’s Gambit (NASDAQ: GMBT). Queen’s Gambit went public back in January 2021, when it issued 34.5 million shares at a price of $10.00/share. It then announced the “business combination” with SWVL six months later. Fast forward to today, shares of the new combined business will begin trading under the ticker “SWVL” starting this Thursday, March 31, 2022.

But what made SWVL decide to go public in the first place?
Salem highlighted four reasons behind the company’s decision to go public.

• “Access & first-mover to public currency”
  • “By being the first technology-enabled mass transit player to be listed on any exchange globally, we are able to use this unique public currency to attract the best talent and combine with the leading players in this space globally”
• “Access to capital”
  • “The US public capital markets are some of the deepest and most liquid capital markets globally with access to various pools of equity, debt, & hybrid funding
• “Enhanced visibility and credibility”
  • “Half of our business is B2B and B2G where we provide transport as a service and software as a service to some of the leading corporates, universities, schools, & industrial clients globally as well as public transit agencies. Contracting with a Nasdaq listed company offers clients enhanced reliability”
• “Timing”
  • “After extensive expansion across Africa, the Middle East, & South Asia, the next step in our journey was to expand our offering to the Americas and Europe. For this, we required a pubic currency on a global exchange to attract top talent and partners in these geographies”

Why go public via SPAC?
Why not just file for a traditional IPO? Well, SPACs do have their advantages. 

• Put simply, going public via SPACs is a faster process than an IPO. On average, SPAC deals usually occur in 3–6 months, while IPOs usually take 12–18 months. 
• SPACs are also less expensive than IPOs. While percentage fees vary depending on deal size, SPACs are generally less costly.
• Companies benefit from the additional operational expertise that comes with the SPAC’s board of directors.
• SPACS come with more regulatory flexibility, so far. Target companies don’t need to provide historical numbers so much as forward-looking projections.

Why SWVL chose to go public via SPAC
Salem highlighted three main benefits of going public via SPAC.

“More certainty over funds and valuation”

• “The valuation in the de-SPAC is fixed upfront (rather than towards the end of the process like an IPO)”
• “A substantial portion of the capital from the de-SPAC comes from the PIPE and signed non-redemption agreements which is capital that is fully committed upfront (rather than the capital coming in as part of the backend book building process like an IPO)”

“Accelerated process”

• “This early deal certainty from July last year allowed us to accelerate our global expansion plans”
  • “Acquired the largest asset-light mass transit marketplaces/SaaS players in Germany, Spain, and Argentina and invested in the largest in UK and Mexico in primarily share for share deals using our new public currency”
  • “Strengthened the leadership team with ex-global leaders from the management teams of Uber, Meta, Via, Spotify, Optibus, and many others”
• “As the largest fully asset-light mass transit marketplace and SaaS platform globally and the first to be listed on any exchange, this accelerated process further reinforced our first move advantage to both operations and capital”

“Strategic partners”

• “SPAC and PIPE investors including strategic investors like Agility, Zain, Teklas and EBRD, regional and global leaders in logistics, TMT, auto and climate investments respectively, all highly synergistic with Swvl’s operations and strategy”

SPACs come with drawbacks. Let’s take a look at what kinds of risks are present during the process.

• Compressed timeline. The responsibility of finalizing the required financials & establishing public company functions such as investor relations & internal controls falls on the target company.
• Slow but steady increased regulations over SPAC deals. The Securities & Exchange Commission (SEC) announced new accounting regulations in 2021 for SPACs. Some market analysts expect greater regulation could be on the way.
• Chance of capital redemption. Investors who bought shares in the SPAC could choose to redeem their shares, & if too much is redeemed then cash availability becomes uncertain.
• This results in another risk, shareholding dilution. When cash availability becomes uncertain because of too much capital redemption, the SPAC may be forced to raise more capital in a move known as Private Investment in Public Equity (PIPE). This in turn results in the dilution of existing shareholders’ stakes.

Claps Class
PIPE is when an institution or high-net-worth investor buys stock directly from a public company below market price.

What kinds of risks did SWVL need to assess before choosing to de-SPAC? 
In exclusive comments to Thndr Claps, SWVL’s CFO also touched on the risks SWVL faced when going public via a SPAC, & how the company mitigated these risks.

According to Salem, the “complexity of the process/impact on the business” was one risk for the company.

• “We managed to complete the de-SPAC process without any impact on business focus, launching 12 new countries and executing 5 M&A deals in parallel to completing the de-SPAC process all over the course of 8 months.”

Salem also cited the “short term pressures of public markets”

• “We got comfortable with that given our track record of beating our plans, which continues to be the case after de-SPAC with us beating our estimates for 3 quarters in a row in Q3 and Q4 2021 and Q1 2022 and continuing to raise estimates further.”

“Public readiness” was another risk the company had to mitigate.

• “We completed a public readiness exercise by an independent advisor and put all the infrastructure around finance, legal, tax, compliance, risk, enterprise IT, controls, reporting, US Securities and Exchange Commission requirements, and people & culture ahead of closing the de-SPAC.”

And finally, “Redemptions (ie. risk of investors in the SPAC not following through with the combined business).”

• “We got comfortable with that given the substantial portion of the capital coming from the PIPE and signed non-redemption agreements, which is capital that is fully committed upfront.”

Not all SPACs are the same. It’s of critical importance to find the right SPAC to go public through. 

What do companies look for in a SPAC?
In contrast to traditional mergers and acquisitions, which rely heavily on synergies between the two businesses, SPAC deals rely on the alignment of long-term business goals.

One of the benefits that come with merging with a SPAC is the operational expertise the SPAC’s board of directors brings to the table. Companies looking to go public via SPACs will want to find investors focused in their space. 

One of the risks that come with merging with a SPAC is the risk of capital redemption by investors. The more investors believe in the potential of the target company, the less inclined they are to redeem their investments.

Why was Queen’s Gambit a good fit for SWVL?
SWVL CFO Youssef Salem believes Queen’s Gambit was a good fit for SWVL for three reasons.

• “Alignment on mission”
  • “Swvl’s mission is to provide safe and reliable transport for every person to get to work, school, and everywhere else regardless of their gender, income, and location with a focus on safe transport for women”
  • “Queen’s Gambit is an all-women led SPAC which was seeking to combine with a company that is a leader in the sustainability space”
• “Thought leadership in the mobility space”
  • “Queen’s Gambit board members have extensive expertise in sustainable mobility with current and ex-board and advisory board memberships across global mobility leaders including Volvo, Geely, Porterra, Ford, and Nissan”
• “Strategic and high-quality backers”
  • “Queen’s Gambit is backed by strategic partners in the transport and logistics space including Agility, one of the largest logistics players globally”
  • “Queen’s Gambit shareholder base also includes global blue-chip investors including Blackstone, one of the largest asset managers globally with $0.9 trillion assets under management, and Luxor Capital, one of the earliest backers of Delivery Hero”