DUET Acquisition Pursues Enabling Technology Company After IPO (NASDAQ:DUET)

A Quick Take On DUET

DUET Acquisition Corp. (NASDAQ:DUET) has raised $86.25 million from an IPO at a price of $10.00 per unit, according to the terms of its most recent S-1/A regulatory filing.

The SPAC (Special Purpose Acquisition Company) intends to pursue a merger with an 'enabling technology' company which can 'encompass a wide spectrum of capabilities from holistic e-commerce, fintech and big data analytics to robotic process automation' (Ex-China).

While DUET's leadership has direct industry expertise, the SPAC is missing two other characteristics I value, namely, a clear industry focus and previous successful SPAC results.

I'm therefore on Hold for DUET at this time.

DUET Background

DUET has 3 executives leading its operations:

- Chairman Larry Gan Nyap Liou, who has been an investor in eCommerce and digital enterprises for the past 17 years.

- Co-CEO Yeoh Oon Lai, who has held C-level positions at various consumer retail and entertainment firms such as TGV Cinemas and FJ Benjamin.

- Co-CEO Dharmendra Magasvaran, who has been a partner with Deloitte Digital Southeast Asia.

The SPAC is the first vehicle by this executive group.

DUET's SPAC IPO Terms

Kuala Lumpur, Malaysia-based DUET sold 8.625 units of Class A common stock and warrants at a price of $10.00 per unit for gross proceeds of approximately $86.25 million, not including the sale of customary underwriter options.

The IPO also provided for one warrant per share, exercisable at $11.50 per share on the later of 12 months from the effective date of the registration statement and the date of the consummation of its initial business combination and expiring 5 years after completion of the initial business combination or earlier upon redemption or liquidation.

The SPAC has 18 months to complete a merger (initial business combination). If it fails to do so, shareholders will be able to redeem their shares/units for the remaining proceeds from the IPO held in trust.

Stock trading symbols include:

• Units (DUETU)

• Warrants (DUETW)

  
  
  
  
  

• Common Stock (DUET)

Founder shares are 20% of the total shares and consist of Class B shares.

The SPAC sponsor (DUET Partners LLC) also purchased 390,000 units at $10.00 per unit in a private placement. These units are identical to the public units except that they may not be transferred until 30 days after the close of the initial business combination (except to permitted transferees) and they will have registration rights.

Conditions to the SPAC completing an initial business combination include a requirement to purchase one or more businesses equal to 80% of the net assets of the SPAC and a majority of voting interests voting for the proposed combination.

The SPAC may issue additional stock/units to effect a contemplated merger. If it does, then the Class B shares would be increased to retain the sponsor's 20% equity ownership position.

Commentary About DUET

The SPAC intends to focus on a wide range of digital-oriented industry targets, so it is difficult to determine at this time what the market dynamics are for the ultimate target company.

The leadership team has significant experience in eCommerce and other digital industries, so that's a plus.

However, like so many SPACs in recent periods, the team doesn't have a successful SPAC track record, a strong negative in my view.

Investing in a SPAC before a proposed business combination is announced is essentially investing in the senior executives of the SPAC, their ability to create value and their previous SPAC track record of returns to shareholders.

So, in a sense, investing in a SPAC can be likened to investing in a venture capital firm as a limited partner.

The cost of that investment is roughly the same, 20% of the upside to the SPAC sponsor, but the time frame for realizing a significant gain can be far faster, a 1- to 3-year time period for a SPAC versus 10 or more years for a typical venture capital fund.

Also, unlike a venture capital fund, a SPAC is liquid, providing public investors with an added liquidity benefit should they need to sell.

I believe investors in SPACs before the SPAC has announced a proposed merger target should set a high bar before investing, with direct industry expertise, a declared focus industry that can be evaluated and previous successful SPAC results.

So, while DUET's leadership has direct industry expertise, the SPAC is missing the two other characteristics I value.

I'm therefore on Hold for DUET at this time.

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