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.