TheChek News Flow

Are Spacs making a comeback?

The special purpose acquisition company gravy train has returned to the station just in time for the Thanksgiving holiday. And the UK stock market is eager to get a seat at the table.

Hambro Perks, the London-headquartered venture capital firm, will seek to raise up to £150m for an acquisition vehicle in what could be the UK’s first big blank-cheque debut since the government overhauled its rules to compete with New York’s bustling Spac scene.

The Spac will then be used to merge with a fast-growing private European tech business within 15 months, the group announced on Tuesday.

Behind the wheel is Dominic Perks, a former McKinsey consultant and Morgan Stanley banker who told the FT that changes to the UK’s listing rules had been “crucial” in bringing the Spacs company to London.

But those tucking into London’s slow-roasting Spac market may soon realise that blank-cheque deals are juiciest for the sponsors and Pipe investors (aka institutional investors who agreed to partake in deals through so-called private investment in public equity transactions), while retail investors are often left to sort through the bones.

In the first quarter of this year, for example, US blank-cheque companies broke records in terms of fundraising and dealmaking. But when DD crunched the numbers, 65 per cent of the deals completed in 2021 at a valuation above $1bn are trading below $10 — the price at which they were floated.

The market seemed to have caught on as redemptions from blank-cheque vehicles soared to an average rate of 52.4 per cent in the third quarter of this year amid a series of scandals. One top Wall Street banker proclaimed: “We’ll never see Q1 again, never.” 

Never say never. As DD’s Ortenca Aliaj and Miles Kruppa report in this Big Read, a new round of deals is sparking new signs of life into the market.

Sponsors are hoping it’s a sign of a maturing market, a bit like the steady resurgence of scandal-hit junk bonds in the 1980s. 

But here’s the more likely scenario: a retreat from institutional investors over the past six months, whose Pipe investments previously turbocharged the market, means dealmakers are now forced to rely on a smaller group of initial investors who can then extract better terms.

This means that sponsors may be forced to sacrifice a chunk of the huge windfalls they usually receive when a deal goes through, as private investors demand more for their money.

But even as the fine print evolves, one thing remains true when it comes to Spacs: the higher up on the food chain, the better.

A remarkable new history of the Ottomans restores the empire’s central role in shaping European culture

On my last visit to Istanbul, while passing along the Golden Horn in bright autumnal light, I came across a semi-deserted Ottoman tomb complex. A shady garden gave on to the courtyard of a mosque, behind which stood an octagonal tomb tower. This, I read, was the mausoleum of a long-forgotten Ottoman admiral, named Kilic Ali Pasha. The Pasha had distinguished himself fighting the massed navies of Christendom’s Holy League at the Battle of Lepanto in 1571. For his bravery in this disastrous battle — where 200 out of 230 Ottoman ships sank and some 50,000 of their seamen lost their lives, he was made the Kaptan Pasha, or High Admiral. In 1573 he went on to seize Christian Cyprus from the Venetians.

Here, it seemed, was a figure who might be taken to personify the Clash of Civilisations — “The Terrible Turk” incarnate — until, that is, I discovered that Kilic Ali was actually a Calabrian named Occhiali who had chosen to convert to Islam to enter Ottoman service. Any assumption of some inevitable battle between the forces of Asia and Europe was further challenged when I read that the complex had been constructed by another Christian convert, the great Sinan, formerly an Armenian named Joseph, and that the mosque was modelled on the great Byzantine church of Haghia Sophia. During the same period, the most powerful Ottoman vizier was the eunuch Hasan Aga, formerly Samson Rowlie from Great Yarmouth, while the Ottoman general known as “Ingliz Mustapha” was in reality a Scot, a Campbell no less, who had embraced Islam and joined the Janissaries.

Kilic Ali Pasha’s Istanbul tomb was situated in the perfect position for a man who lived such a cross-cultural life, balanced between two continents. Yet, for all its exoticism, Istanbul, the New Rome of the Emperor Constantine, has always been a European city. And while the Ottomans’ Turkic roots lay in Anatolia, and before that Central Asia, they nevertheless played a central part in European history: indeed at their peak, controlling one bank of the Danube, and encamped in the suburbs of Vienna, the Ottoman’s global empire governed nearly a quarter of Europe, including all of modern Serbia, Bosnia, Macedonia, Albania, Bulgaria, Hungary and Greece. They were also western Europe’s biggest trading partner. These are the central facts that underlie Marc David Baer’s magnificent new book, The Ottomans.

“Like its language, the Ottoman Empire was not simply Turkish,” writes Baer, professor of international history at the London School of Economics. “Nor was it made up only of Muslims . . . Like the Roman Empire it was a multi-ethnic, multilingual, multiracial, multireligious empire . . . It was a European Empire that remains an integral part of European culture and history.”

The Ottomans believed that their advance into Europe meant that they were the inheritors of Byzantium and should therefore be considered the new Romans. This was something that people around the world were once happy to acknowledge: “Arabs, Persians, Indian and Turks referred to the Ottoman rulers as Caesars and their dominion as the Roman Empire,” writes Baer. “Beginning with the Ottoman conquest of Constantinople, some Western European writers did too . . . Why have we forgotten what Europeans thought five hundred years ago? The Ottomans did not evolve in parallel with Europe; their story is the unacknowledged part of the story the West tells about itself.”

Like a swift Ottoman caique cutting through the Sweet Waters of Asia, Baer’s taut prose splices stereotypes and makes us think twice about long-held assumptions. For an empire once so threatening to the outside world, the Ottomans remain today one of the least explored areas of global history: “the forgotten giant” as one Ottoman historian has called it. Today, if they are remembered at all, the Ottomans are usually dismissed in the west as aggressive but ultimately decadent and intellectually incurious warriors who controlled an old-fashioned land empire and who were ultimately defeated by the intellectual firepower of European science, then finally outflanked by its growing transcontinental sea power. Harvesting the fruits of a remarkable wave of recent scholarship, including his own long labours in the Topkapi Palace archives, Baer convincingly shows how comprehensively wrong all these different assumptions are.

Baer opens his book with a wonderful description of working in the archives when he caught a glimpse of one of the great treasures of the collection, the map of the Ottoman admiral, Piri Reis, a predecessor of Kilic Ali Pasha: “At his own initiative, Piri Reis of Gallipoli, a former corsair . . . had drawn one of the earliest surviving maps of the coastline of the New World,” he writes. “He had based it on Columbus’s original, which is lost, and even interviewed a crew member from Columbus’s voyages. To produce for the sultan one of the most complete and accurate maps of the world, Piri Reis had consulted ancient Ptolemaic, medieval Arab, and contemporary Portuguese and Spanish maps.” Intent on rivalling the Portuguese from Iberia to Indonesia, the Ottomans were intent on keeping up with European discoveries. Other Ottoman admirals wrote books on astronomy and nautical science and compiled atlases and geographical treatises, though none matched Piri Reis’s great Book of the Sea (1526).

Baer points out that the Ottomans were important players in what we tend to regard as the exclusively European Age of Discovery, that period of exploration which laid the foundations for three centuries of western colonialism. He shows how, following the Ottoman conquest of Egypt in the early 16th century, the Ottomans became a major maritime power in the Indian Ocean, where they battled their Portuguese enemies, and in the interlude before the establishment of Mughal power, even briefly took over the Indian ports of Surat and Diu. Indeed with “ships agile as sea serpents” they projected their power further still, aiming to control oceangoing trade to south-east Asia. No wonder the Sultans referred to themselves as “Lord of the Two Seas and Two Continents,” and “Masters of the Seven Climes”.

The author ably demonstrates how for 200 years, from the mid-15th century, the Ottoman Empire was in fact the most powerful force in Eurasia. From behind the Sublime Porte, the Sultan and his Viziers ruled a patchwork of peoples, languages and religions across many times zones: decisions made in Constantinople affected millions across the globe. From his palace on the Bosphorus, the 16th-century Grand Vizier, Mehmed Sokollu Pasha, a Serbian convert from Christianity and son-in-law of Selim II, simultaneously planned canals between the Don and the Volga, and the Red Sea and the Mediterranean; one day he might send artillery experts to the Sultanate of Aceh, Sumatra, to cut off the Malacca Strait and dispatch agents to fan rebellion against the Portuguese across the Indian Ocean; the next, choose a new king of Poland to thwart the Russians; the third, dispatch “musketeers to fight as guerrillas on the side of Morisco rebels in Andalusia.” He ordered pictures from Venice and commissioned an eleven-arched bridge over the Drina river. His inner circle included “Jewish courtiers, Venetian ambassadors and members of the Ottoman Greek elite.”

Ottoman merchants were equally innovative, cultivating tobacco and tomatoes, tapping into the rich vein of trade in spices and silk, building watches, clocks and eyeglasses and turning coffee into a global fad.

Nor — at least at first — was this an intolerant empire. Although tensions always existed between Muslim rulers and the religious communities living under their capricious thumb — by modern standards, Christians and Jews, the dhimmi, were treated as second-class citizens — there was at least a kind of pluralist equilibrium — what Spanish historians have called convivencia or “living together” — which had no parallel in Christendom. When the Catholic kings evicted the Jews from Granada, they were granted asylum within the Ottoman Empire. Salonica soon had a Jewish majority.

It was only when, as Baer puts it, “the Ottomans turned away from incorporating diversity that . . . tolerance was replaced by ethnic cleansing and genocide,” and the empire promptly collapsed, as a tidal wave of nationalist uprisings spread from Bulgaria and Greece, replacing multi-ethnic diversity with a series of mono-ethnic religious nationalisms. The last Sultans sealed their fate by condoning the anti-Armenian pogroms that culminated in the terrible massacres of 1915-16. Then, in the darkest moment in Turkish history, maybe 1.5m Armenians were starved, beaten or bayoneted to death in a genocide that is said to have inspired Hitler. In the aftermath, the Anatolian Greeks migrated to Greece, the Jews to Palestine, and those Armenians who survived, to a truncated soon-to-be-Soviet Armenia and the US.

Until the twin forces of President Erdogan’s Neo-Ottomanism, and the Netflix Ottoman mega-drama Ertugrul reminded them, even the Turks had come to ignore an imperial past they had been taught by Ataturk to think of as the decadent “sick man of Europe”. Few western historians have had the knowledge of Ottoman Turkish to prove them wrong. Marc David Baer’s important and hugely readable book — a model of well-written, accessible scholarship — goes a long way to correct this.

Hedge fund among several to score large gains on electric vehicle start-up

Daniel Loeb’s Third Point has made a profit of about $300m on its stake in Rivian, one of several hedge funds to make large gains from the electric vehicle maker’s turbocharged flotation this month.

Billionaire investor Loeb made the gains through a series of investments over the past year including in its convertible notes, according to investor letters and a person with knowledge of the trade.

Rivian, which makes pick-ups and vans and is backed by Amazon and Ford, soared on its market debut this month, giving it a value greater than both Ford and General Motors, even though it is yet to record any meaningful revenue.

Shares surged from their offer price of $78 to more than $170 last week, although they have since fallen back to $118, knocked in part by news that Ford had scrapped plans to create an electric vehicle using technology developed by Rivian.

Among other funds to have profited on Rivian are Daniel Sundheim’s D1 Capital and Philippe Laffont’s Coatue Management, which both invested during a $2.5bn funding round this summer, as well as London-based Infinity Investment Partners.

Third Point, D1, Coatue and Infinity declined to comment.

Loeb, whose total gain on Rivian has not previously been reported, wrote in a recent investor letter that Third Point had met founder and chief executive RJ Scaringe early last year and was “deeply impressed by his charismatic vision and approach to designing a new type of automotive company”.

Loeb also pointed to the backing of Amazon, which has ordered 100,000 commercial delivery vehicles from Rivian. “As Amazon seeks to become a dominant player in logistics while being carbon neutral, we believe that Rivian will be their end-to-end fleet provider of choice,” he wrote.

Third Point, which has $20bn in assets under management, this summer invested $167m in the company’s convertible notes, which were switched into shares at the time of the initial public offering, as well as two more investments, including around the time of the IPO.

Third Point wrote to investors on November 10, the day of the flotation, to say it had made a 640 per cent gross internal rate of return, an annual measure of performance favoured by the private equity industry.

Mayfair-based Infinity Investment Partners, meanwhile, first invested in Rivian in January and has made a gain on its initial position of more than three times, according to a letter sent to investors last week. That equated to gains in the tens of millions of dollars, according to a person familiar with the position.

“Rivian is in a unique position to become the key player in the automotive industry on both the passenger and commercial side”, Infinity wrote in its letter.

Loeb’s $300m profit is the latest in a series of large gains he has made from privately held firms that have come to market.

His fund’s biggest winning position this year, responsible for about a quarter of gross profits, has been Upstart Holdings, an artificial intelligence lending platform that floated at the end of last year and which is up 400 per cent this year. Its second-biggest winner is cyber security firm SentinelOne, whose IPO was this summer.

In the first 10 months of this year Third Point is up 35.7 per cent, its best year of returns in more than a decade.

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European Commission publishes first report on regulations for screening foreign deals

Eye on Chinese investments

Not too long ago, western countries boasted of the amount of foreign domestic investment they attracted. Now they brag about how much they have rejected, writes Andy Bounds in Brussels.

Yesterday the European Commission published its first report on the FDI screening regulation, which came into force in October 2020. The report also examines actions by member states to rein in on what is seen as hostile takeovers of sensitive technology or strategic assets by companies from outside the EU.

Both the bloc as such and at a national level, Europeans have followed the US and tightened their scrutiny over fears that Chinese groups could be plundering local technology from companies or using them to further Beijing’s foreign policy aims.

Some 18 countries now have an FDI screening system and six more are planning one. The holdouts are Bulgaria, Croatia and Cyprus.

The commission only examines sensitive deals that affect more than one member state or community programmes such as the Galileo satellite system. It cannot block deals itself but can ask national regulators to do so.

Over the past year, the commission looked at 265 projects and put conditions or tried to block only eight. Officials confirmed to Europe Express that they included the purchase of Italian semiconductor company LPE by Shenzhen Investment Holdings.

On the national side, member states’ regulators looked at a total of 1,793 cases and 80 per cent of FDI projects were approved without screening. Of those screened, just 2 per cent were blocked and 7 per cent aborted by one of the parties. Some 45 per cent of cases involved US purchasers, and just 8 per cent Chinese (though the Chinese share of FDI was just 2 per cent).

But the regulation might already need adapting, warned Noah Barkin, an expert in Chinese-EU investment at Rhodium Group, a US consultancy.

“China is shifting its approach,” he said. Chinese companies prefer to build their own factories in the EU rather than gain access by buying EU ones, which tends to attract scrutiny. “Greenfield investment has hit levels last seen in 2016,” Barkin told Europe Express.

Chinese companies also look for smaller deals and use offshore structures to avoid attention, he added.

“The EU needs to remain vigilant to track the shift in how Chinese firms approach the EU market,” Barkin said.

The Wall Street Journal reported this month that Italian authorities have discovered that the 75 per cent stake in drone maker Alpi Aviation was sold via offshore vehicles to China Railway Rolling Stock Corp — a state-owned rail company — and an investment group controlled by the Wuxi municipal government.

Scrutinising deals that are structured through offshore companies would require a whole different level of resources, both at a national and EU level, however. And that is unlikely to happen anytime soon, with commission officials admitting they are already struggling with the volume of cases.