The bronze Charging Bull in the financial district of New York.
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LONDON – The SPAC craze is starting to gain momentum in Europe.
After a banner year for so-called special procurement companies in the USA, an increasing number of blank check firms are raising money with the aim of setting up a European technology company.
SPACs are shell companies created for the sole purpose of raising funds to acquire an existing private company so that the target firm can circumvent the traditional IPO process.
According to data from Refinitiv, these blank check companies raised a total of $ 78.2 billion in 244 IPOs in the US last year. The US SPAC mania continued into 2021, with another 134 businesses raising nearly $ 39 billion since the beginning of the year.
The appeal of SPACs is that they provide a way for companies to accelerate a stock market listing. A message can be a much longer process, and some businesses avoid the traditional route of avoiding potential fluctuations in market sentiment. IPOs have also drawn criticism from venture capitalists such as Ben Gurley, who are worried they are too low.
SPACs offer an alternative to IPOs, as well as direct listings where firms sell existing shares to public market investors. They often attract technology companies with great growth. Last year, the British manufacturer of electric vehicles, Arrival, announced an agreement to announce through a merger with a US blank check company.
Mostly an American phenomenon
Europe has largely missed the SPAC boom. Just three SPACs listed in Europe last year earned $ 495 million. And not a single SPAC has made its debut on the continent so far this year.
SPACs are not a new phenomenon, but they flourished in the US in 2020. Investors’ funds are held in a trust account after a SPAC completes its IPO, and shareholders can vote against the agreement if they do not agree to it and get their money back.
Industry insiders say that SPACs in the US are structured differently compared to Europe. And Europe is home to far fewer listed technology companies than America, making it harder for investors and analysts to make comparisons and benchmark companies in the sector.
The London Stock Exchange wants to attract more SPACs and has contacted law firms and banks to see if they can facilitate the listing of such vehicles, a source known to CNBC said.
The person prefers to remain anonymous as the conversations were not made public.
Meanwhile, the UK has launched a review of its listing rules in an effort to attract more tech companies to the market. Europe as a whole experienced a remarkably quiet year last year in terms of technical IPOs, while the US saw a spate of major debuts from doorDash and Airbnb.
“Unfortunately in Europe, interesting and attractive companies do not have the same access to capital as in the US, whether in the private domain, nor in the public markets,” said Makram Azar, CEO of Golden Falcon Acquisition Corp., a SPAC. . focused on European technology, told CNBC’s “Street Signs Europe” on Friday.
“The venture capital pool, for example, is much smaller in Europe than in the US and the stock market is very weak.”
Presentations at work
An increasing number of blank check firms are listing in New York with the aim of buying a European technology firm.
Azar, the former chairman of banking for Europe at Barclays, raised $ 345 million for his SPAC in December. Golden Falcon wants to take on a European “champion” in technology, media and telecommunications (TMT) or fintech audiences.
“There are more than 60 TMT and fintech unicorns in Europe,” of which more than 20 are based in the UK, Azar said, adding that he sees ‘many attractive businesses’ in the region.
Over the years, Fintech has been a special blessing to the European technology sector. Adyen, a Amsterdam-listed payment company, has seen its share price more than double year-on-year. And there are increasingly valuable companies in the private markets, such as Checkout.com and Klarna.
Another SPAC, North Atlantic Acquisition Corp, raised $ 379.5 million last month. The company is mainly looking for targets in the consumer, industrial and TMT sectors in Europe.
“This is an interesting market in Europe,” said Gary Quin, CEO of North Atlantic Acquisition Corp. and former vice president of Credit Suisse’s investment banking division in Europe. “We see a pipeline of offerings coming from a few different areas.”
Quin said he expects his SPAC to reach an agreement with a European firm “between January and two years from now”.
Some European companies are already thinking of merging with SPAC companies.
One SPAC called more than ten European technology companies shortly after its IPO, a source familiar with CNBC said. The person chose to remain anonymous due to the sensitive nature of the discussions.
SPACs are not able to enter into potential merger targets until they are listed.
Europe is often seen as lagging behind in the US and China in terms of technology, but the region is growing rapidly. European companies hit a record $ 41 billion last year, according to London venture capital firm Atomico.