FlatWorld Capital LLC, a New York-based private equity investment firm, is planning to launch a special purpose acquisition company (SPAC) in the US for investing in Indian companies. It will target mid-market offshoring firms, and eventually gets them listed in the Nasdaq stock exchange.
SPAC is a pooled investment vehicle that allows public stock market investors to invest in private equity type transactions, particularly leveraged buyouts. These are the shell or blank-check companies that have no operations but go public with the intention of merging with or acquiring a company.
Though the company sources in Flatworld did not want to comment on the development, market players indicating that the firm is working on a SPAC of $40 million for investing in companies in India. Raj Gupta, partner, FlatWorld Capital, also avoided the query while speaking to VCCircle.
Flatworld Capital represents family offices and pension funds in the US and invests up to $100 million in a year. It invests in between $25 milion and $75 million each in profitable companies. Faltworld, which also has an office in Hyderabad, is currently in the fourth year of its operation.
FlatWorld Capital focuses investments in leverage buyouts, recapitalisations, restructurings, acquisitions and growth of middle market companies in the US and India. It primarily targets business services companies, but is open to other sectors as well, Gupta said. The firm, however, is yet to make its first investment in India.
It has recently acquired DJS Processing LLC, a Florida-based provider of business processing services for mortgage and real estate industries. The acquisition was done through FlatWorld Capital’s affiliate DAL Group, LLC. FlatWorld Capital has eventually merged the firm with a British SPAC called Chardan 2008 China Acquisition Corp to get it listed in Nasdaq. “With the merging of DJS Processing with Chardan, our investment became public right away and brought in liquidity at the time of investment,” stated Gupta. Post this merger, the new entity is called DJSP Enterprises, Inc.
Flatworld Capital has acquired the firm at an enterprise value of $260 million, while $55 million funding came from Chardan 2008. With this acquisition, Flatworld has brought in around 1,100 employees in its fold.
DJS Processing has operation in Manila, Philippines and is engaged in offshoring activities. The company has posted net profit of $45 million in the calendar year 2009. Flatworld Capital plans to expand its operation further in the Philippines.
Elaborating the benefit of investments through SPAC, Gupta said, “The route is easier to invest, especially in case of mid-market companies, without blocking the capital in PE funds for longer period.” He further added that for promoters, this was the easiest way to get their firms listed in the exchanges avoiding otherwise complicated procedures.
Speaking about the competition in SPAC investment when the conventional PE players are equally active in the same space, Gupta said, “Both of us have our own policies of investments and have risks and benefits attached to them.”
Gupta, however, said that the markets looked very promising and were recovering from the slowdown, and hinted that the fund was looking forward to investments in India, as well as in other geographies.