Spacs – special purpose acquisition vehicles – had a very good year in 2021, with some 600 Spacs raising 165 billion dollars but they are, like the rest of the economy, adapting to the new post-Covid economic reality. Many investment banking and legal experts active in the Spac field see them continuing to do well.
At least 17 Spacs were registered in Luxembourg during 2021, four of which have received regulatory approval permitting them to list on public stock exchanges. Two of them have announced their targets for what’s termed a “business combination”, raising significant amounts of funding for holiday rental company HomeToGo and German kid’s audio entertainment business Boxine, the parent company of the Tonies.
Spac OboTech Acquisition raised EUR200 million on the German DAX stock exchange, with British tech bank Bullhound’s Spac raising the same amount on the Amsterdam Stock Exchange, both before announcing their targets.
The increased volatility in global equity markets has led to a rotation away from long-duration growth assets towards value, explained Chuba Ezenwa, a director of equity capital markets at Citi.
Proportionate impact
“That has had a proportionate impact on the performance of companies that have listed by way of combinations with Spacs, where there’s a heavy weight towards growth,” he said. The ample supply of Spacs has led to very investor-friendly terms being offered, he said.
Clementine Hogarth, a financial services partner at Norton Rose Fulbright, agreed that the Spac IPO market has “slightly slowed a bit”. She, like the others, was speaking at an event organised by IQ-EQ entitled “The rise of the Spac in Europe – where does it go from here?”.
European growth capital
Ezenwa pointed out that the European Spac market is at a “very nascent stage”. He said that there had only been about “23 or so” of the US-style structured Spac IPOs since the start of last year and only three business combinations.
He stated that investors are very much supportive of the continued development of the European Spac market. “I think there’s a clear understanding that it has a role to play to bring more growth capital to European companies,” where Europe continues to lag the US.
Faster speed to market
The changed economic circumstances have impacted the ways Spacs operate. With investors seeking higher returns, “one of the levers to pull in a Spac transaction is how much time you give a sponsor to find a target.” He explained that early last year, the standard was 24 months, but today’s market has cut that to 15 to 18 months.
Tim Koppelman of ABN Amro agreed that the window is being limited. But he stated that he didn’t see higher interest rates as specifically an issue for Spacs, saying it might even be an advantage.
Litigation fears
On the other hand, Hogarth pointed out, there has been a move away from the US as a major Spac market, fuelled in part by fears of litigation. Such litigation stems from US Spacs making use of “forward-looking statements” that are found not to be accurate.
Europe won’t see this kind of legal action, explained Floortje Nagelkerke, a corporate finance partner at Norton Rose Fulbright, because prospectuses in Europe don’t rely on projections and because European law requires a prospectus to meet certain requirements on investor information.
Where to set up
The panel discussed the issue of what criteria are important for choosing a jurisdiction for your Spac. “What we always ask our clients is when you think about your target universe, how many of those targets are more appropriate to be listed in the jurisdiction in which you are exploring the Spac IPO,” said Ezenwa.
Koppelman took another view. “I don’t think that that is a consideration at all, to be honest, since we see de-Spac-ings with other jurisdictions, as well, and cross-border mergers are facilitated very well in the Netherlands.” In his view “it’s far more important” to carry out checks on what a Spac wants to accomplish and determine which jurisdictions match those requirements.
Spacs continue to develop
Hogarth called attention to the change in UK rules around Spacs to make them more in line with US rules. “It has certainly levelled out the playing field from a regulatory perspective in terms of where sponsors are coming to look.”
The speakers agreed that with many Spacs having their business combination deadline in early 2023, 2022 will be the de-Spacing year. Those based in Amsterdam expressed their view that this will continue to fuel the Spac boom that Amsterdam has seen.
While the panel included no representative from Luxembourg, the question of the role to be played by the Grand Duchy in the area of Spacs was raised. Tim Koppelman, senior legal counsel at ABN Amro pointed to Luxembourg’s flexible rules and regulations and history as a financial hub. “From that perspective, I would say not much is going to change.”
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