The Bronze Charging Bull in the financial district of New York City.
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LONDON – SPAC fashion is starting to gain strength in Europe.
After a year of advertising for so-called special-purpose acquisition companies in the United States, a growing number of blank check companies are raising funds with the intention of getting a European tech company.
SPACs are shell companies that are created for the sole purpose of raising funds to acquire an existing private company, so that the target company can avoid the traditional initial public offering (IPO) process.
These blank check companies raised a total of $ 78.2 billion in 244 IPOs in the U.S. last year, according to Refinitiv data. The US SPAC craze continued through 2021, with another 134 companies raising nearly $ 39 billion since the beginning of the year.
The attraction of SPACs is that they offer a way for companies to quickly track stock market listing. A IPO can be a much longer process, and some companies shy away from the traditional route to avoid possible changes in market sentiment. IPOs have also attracted criticism from venture capitalists like Ben Gurley, who worry about them being priceless.
SPACs provide an alternative to IPOs, as well as direct listings where companies sell existing shares to public market investors. They often attract high-growth tech companies. Last year, UK electric vehicle maker Arrival announced an agreement to go public through a merger with a U.S. blank check company.
Especially an American phenomenon
Europe has largely lost the SPAC boom. Only three SPACs were listed in Europe last year, with a figure of $ 495 million. And no SPAC has been released on the continent so far this year.
SPACs are not a new phenomenon, but they flourished in the United States in 2020. Investor funds are held in a trust account after a SPAC ends its IPO, and shareholders can vote against the deal if they disagree and get their money back.
Industry experts say SPACs tend to be structured differently in the U.S. compared to Europe. And in Europe there are far fewer publicly traded 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 attract more SPAC and has contacted law firms and banks to see if they can facilitate the listing of these vehicles, a source familiar with the matter told CNBC.
The person preferred to remain anonymous as the conversations have not been made public.
Meanwhile, the UK has launched a review of its listing rules to try to attract more tech companies to the market. Europe as a whole had a markedly quiet year in terms of tech IPO last year, while the United States saw a wave of major debuts the size of DoorDash and Airbnb.
“Unfortunately in Europe, interesting and attractive companies do not have the same access to capital as in the United States, neither in the private domain nor in public markets,” said Makram Azar, CEO of Golden Falcon Acquisition Corp., a technology-focused SPAC told CNBC’s “Street Signs Europe” on Friday.
“The set of venture capital money, for example, is much smaller in Europe than in the United States and the stock market is very weak.”
Offers in works
A growing number of blank check companies are listed in New York with the goal of buying a European technology company.
Azar, the former European banking president at Barclays, raised $ 345 million for his SPAC in an IPO in December. Golden Falcon wants to get a European “champion” in technology, media and telecommunications (TMT) or fintech audience.
“There are more than 60 TMT and fintech unicorns in Europe,” more than 20 of which are based in the UK, Azar said, adding that he sees “very attractive companies” in the region.
Fintech has been a particular asset to the European technology sector over the years. Adyen, an Amsterdam-based payment company, has seen its share price more than double year over 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 on its IPO last month. The company is primarily looking for 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 president of Credit Suisse’s investment banking division in Europe. “We’re seeing a number of offers coming from a few different areas.”
Quin said he expects his SPAC to reach an agreement to combine it with a European company “sometime between January and in two years’ time”.
Some European companies are already thinking of merging with SPAC companies.
An SPAC called on more than ten European technology companies shortly after its IPO, a source familiar with the matter told CNBC. The person preferred to remain anonymous due to the sensitive nature of the discussions.
SPACs cannot achieve potential merger targets until after the list.
It has often been seen that Europe lags behind the United States and China in terms of technology, but the region is growing rapidly. Emerging European companies achieved record funding of $ 41 billion last year, according to London-based venture capital firm Atomico.