The Bronze Charging Bull in New York City’s Financial District.
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LONDON – The SPAC craze is starting to gain some momentum in Europe.
After an exciting year for so-called special purpose acquisition companies in the US, a growing number of blank check companies are raising money with the intention of raising a European technology company.
SPACs are shell companies established for the sole purpose of raising funds to acquire an existing private company so that the target company can bypass the traditional initial public offering (IPO) process.
These blank check companies raised a total of $ 78.2 billion last year through 244 IPOs in the US, according to data from Refinitiv. The US SPAC mania continued into 2021, with an additional 134 companies raising nearly $ 39 billion since the start of the year.
The appeal of SPACs is that they provide a way for companies to accelerate listing. An IPO can be a much longer process, and some companies are shying away from the traditional route to avoid possible fluctuations in market sentiment. IPOs have also received criticism from venture capitalists such as Ben Gurley, who are concerned that they are under-priced.
SPACs provide an alternative to IPOs, as well as direct listings where companies sell existing shares to investors in the public market. They often attract fast-growing technology companies. Last year, British electric vehicle manufacturer Arrival announced a deal to go public through a merger with a US blank check company.
Usually an American phenomenon
Europe has largely missed the SPAC boom. Just three SPACs listed in Europe last year brought in $ 495 million. And so far, not a single SPAC has been introduced to the continent this year.
SPACs are not a new phenomenon, but they flourished in the US in 2020. Investor money is held in a trust account after a SPAC completes its IPO, and shareholders can vote against the deal if they disagree and get their Money Back.
Industry insiders say SPACs in the US are generally structured differently than they are in Europe. And Europe is home to far fewer listed technology companies than America, making it more difficult for investors and analysts to make comparisons and benchmark companies in the sector.
The London Stock Exchange wants to lure more SPACs and has reached out to law firms and banks to see if they can facilitate the listing of such vehicles, a source familiar with the case told CNBC.
The person preferred to remain anonymous as the conversations were not made public.
Meanwhile, the UK has launched a review of its listing rules to attract more tech companies to the market. Europe as a whole had a remarkably quiet year in tech IPOs last year, while the US saw a wave of major debuts from the likes of DoorDash and Airbnb.
“Unfortunately, interesting and attractive companies in Europe do not have the same access to capital as in the US, either in the private domain or in the public markets,” said Makram Azar, CEO of Golden Falcon Acquisition Corp, an SPAC. focused on European technology, CNBC’s “Street Signs Europe” said Friday.
“For example, the venture capital pool of money is much smaller in Europe than in the US and the IPO market is very weak.”
Deals in the making
An increasing number of blank check companies are listing in New York with the goal of buying a European technology company.
Azar, the former chairman of Banking for Europe at Barclays, raised $ 345 million for his SPAC during an IPO in December. Golden Falcon is looking for a European “champion” in technology, media and telecom (TMT) or fintech audience.
“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 “very attractive companies” in the region.
Fintech has been a special boon to the European tech sector over the years. Adyen, an Amsterdam-listed payment company, has more than doubled its share price 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 in its IPO last month. The company mainly seeks targets in the consumer, industrial and TMT sectors in Europe.
“It’s an interesting market in Europe,” said Gary Quin, CEO of North Atlantic Acquisition Corp and former vice chairman of Credit Suisse’s investment banking division in Europe. “We see a pipeline of deals coming from a few different areas.”
Quin said he expects his SPAC to negotiate a deal to combine with a European company “sometime between January and two years from now.”
Some European companies are already considering a merger with SPAC companies.
One SPAC had more than 10 European technology companies on the phone shortly after the IPO, a source familiar with the case against CNBC said. The person preferred to remain anonymous due to the sensitive nature of the discussions.
SPACs cannot pursue potential merger objectives until they are stated.
Europe is often seen as lagging behind the US and China when it comes to technology, but the region is growing fast. According to London-based venture capital firm Atomico, European start-ups raised a record $ 41 billion last year.