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A case study in SPACs: A unicorn loses its horn

Call it a fall in the final furlong. Prenetics was a rare sight last month when it became the first Hong Kong-based unicorn to be publicly listed on any stock market. The medical diagnostics provider merged with Artisan Acquisition, a SPAC backed by New World Development CEO Adrian Cheng.

At the time of the deal, the startup carried an enterprise value of US$1.2 billion.

The NASDAQ debut succeeded despite the odds. The merger was reported to be under pressure amid repricing talks. While that repricing never came, the de-SPAC was amended to shorten the sponsor lockup time, as well as changing the share conversion ratio, forward-purchase agreements and other particulars.

SPAC out of the deal  

Prenetics successfully completed the deal after two similar mergers between US SPACs and Chinese companies failed. Last month, Goldenbridge Acquisition and Shanghai-based work solutions provider AgiiPlus canceled their merger agreement without explanation. The two parties had previously extended the timetable to complete the business combination.

In April, East Stone Acquisition terminated its merger with Chinese merchant enablement services platform JHD Holdings. Instead, it opted for a US$2.5 billion deal with Chinese electric vehicle maker, Iconiq Holding.

Prime the dump 

Despite defying everything thrown its way, Prenetics is a unicorn no more. Since floating on May 28, 2022, its share price has more than halved, leaving it with a market cap of just US$550 million.

Even then, it still carries a price-to-earnings ratio of nearly 37, almost double that of the NASDAQ.

Prenetics has largely made its revenues from COVID-19 PCR tests. Its turnover surged after it was hired by the English Premier League in 2020 to manage testing for players and staff, and it has since launched its star product, the Circle HealthPod.

The device takes inexpensive, disposable COVID-19 tests and delivers lab-quality diagnostics on the spot, with plans to widen testing to other illnesses. With China having recently come out of its strictest lockdown to date, Prenetics should see no shortage of demand, particularly if it can extend its product range. The company is forecasting more than US$640 million in sales by 2025, having turned over US$91 million in Q1 this year.

It's the kind of growth potential that any company would be happy with. But investors have become laser focused on profits amid inflation and the specter of recession. Currently, Prenetics' earnings are thin on the ground. It may be some time before it can reclaim a US$1 billion-plus valuation and restore its former glory.