The UK has been slow to catch on to the SPAC boom, but signs are pointing to the fact that we are warming up and our turn might be coming – presenting an opportunity for founders and investors alike.
Previously, Europe has been more inclined to list its SPACs in the US, particularly given the strong appetite across the pond. However, a highly competitive US market along with a looming crackdown by the US regulators (SEC) are making many switch their attention to Europe and the UK.
Combine this with the fact that UK companies are acknowledged globally to be significantly undervalued and the UK regulators seem open to the idea of loosening elements of the existing listing regime, we could be set for a mini, SPAC bonanza.
But what are SPACs and why the hype?
SPACs are an alternative way for companies to go public. A SPAC is essentially a shell company with the sole purpose of raising capital in an IPO, to merge with an existing privately-owned company. The merged entity then becomes publicly listed as a result.
Managers of SPACs are known as sponsors. They run the company and meet with investors to raise funds. Interestingly though, the target of the acquisition is not necessarily known during the fundraising stage. Only after funds have been raised, do the SPACs target companies to acquire – making SPACs a type of blank-cheque vehicle.
SPACs have emerged as an alternative to IPOs for two main reasons. Firstly they provide companies with a faster way to enter the public markets and secondly they provide investors with more time and flexibility to find the best companies to acquire.
Furthermore, SPACs have less paperwork to file and can go public within six months, compared to a regular IPO, which can take up to 18 months. Investors also have the ability to vote down an acquisition target and reclaim their investment.
Although unlikely to reach the dizzy heights of the US SPAC scene, experts believe Europe and the UK’s turn is coming. According to PitchBook data, so far this year, 293 SPACS have gone public in the US, raising a total of €15.8 billion. In contrast, there have been only 17 listings in Europe, worth €2.2 billion.
Already though, this is 5 more listings than Europe had in 2020, and well up from the solitary one listing in 2019.
With numerous companies in the UK and Europe having reached the right size and maturity to seek capital markets funding, this may create more opportunities for SPAC listings.
While Amsterdam is currently the centre of choice for SPAC listings, the UK Government has plans for a revision of the rules, with the Financial Conduct Authority launching a consultation last month on the proposed changes.
And following Brexit, it would seem logical the rules will be relaxed, and London could be the next SPAC epicentre – making things very exciting for investors, founders and unlisted companies alike.