Hot In The States, SPACs Might Have Global Appeal

Amid a red-hot IPO market here in the United States, some of the most incandescent new listings have come from special-purpose acquisition companies (SPACs).

To that end, as reported on Monday (Sept. 14) by The Wall Street Journal, markets on the continent are taking notice – and at least some areas in Europe may want to hop on the SPAC bandwagon.

In one example, the London Stock Exchange has been examining ways to speed the path for such IPOs, per an unnamed source reportedly “familiar with the matter.”

Broadly speaking, these publicly traded companies use the funds raised through public offerings to acquire firms. The Journal notes that a few key differences remain between SPACs that are listed in the States and those that are listed across the pond.

Among those differences, U.S. investors can vote to approve the acquisition the SPAC proposes or redeem their funds in the event that they do not approve of the proposed deal. Those requirements are not in place in parts of Europe. This means that investors may be able to exercise relatively greater control over SPAC acquisitions here than abroad.

This may be the reason why there have been no SPAC IPO deals in Europe this year, as measured through early September, while in the U.S. the tally of SPAC IPOs has more than doubled year over year to roughly 94, as recorded by Dealogic – and where overall IPO activity (meaning all offerings, including SPAC debuts) has grown by 62 percent in the U.S. to a total $78 billion in new issues. In Europe, by way of contrast, the value of all IPOs is actually down by more than 50 percent to a relatively anemic $6.5 billion.

Part of the allure of SPACs – at least for companies – is that they offer an alternative conduit to capital in an economic and financing environment that is still being buffeted by the coronavirus. For the investors lured to the IPOs, they offer a chance to hitch one’s wagon to illustrious Wall Street names such as Bill Ackman. As noted in this space late last month, for private firms, merging with a SPAC is a way to go public while sidestepping at least some of the administrative hoops of a U.S. Securities and Exchange Commission (SEC) filing.

But research cited by Marketwatch, via Renaissance Capital, estimates that of the more than 220 SPAC IPOs that have launched since the dawn of 2015, only 89 have completed mergers and then gone public – and the average loss has been nearly 19 percent. That stands in stark relief against the average return of “traditional” IPOs of about 37.2 percent over the same timeframe. (Yet there are some standouts: For example, DraftKings, focused on sports and gambling, went public via SPAC and is up more than 250 percent in 2020.)

In the meantime, while Europe may be examining ways to shape listing rules to encourage SPAC listings, at least one deal shows cross-border appeal: Earlier this month, Broadstone Acquisition Corp., which had a $300 million IPO last week, is based in London but is listed on the New York Stock Exchange, while targeting businesses based in both the U.K. and Europe.