Is Europe ready for SPACs?

Only 10 SPAC listings have been completed in Europe since January 2020, with a total value of about $1.3 billion. These figures are dwarfed by the United States, where 522 listings have brought in over $300 billion, according to Refinitiv. The most iconic examples of European SPACs have been led so far by French billionaires, such as Bernard Arnault with Pegasus Europe, and Xavier Niel, with 2MX Organic.

For non-specialists, special-purpose acquisition vehicles or SPACs are shell corporations that first list on stock exchanges, and then merge with an existing privately-owned target, which eventually becomes publicly traded as a result. This blank check granted to a sponsor to perform such an ex post acquisition obviously raises numerous questions on the SPAC framework, without nevertheless jeopardizing its success for now. SPACs somehow disrupt standard models of venture capital funding, before an expected expansion to private equity.

Originally an alternative financing or liquidity tool for companies that could not access the private market via traditional IPO, SPACs are nowadays conversely a preferential route for most attractive startups to get listed. The speed of execution is one of the key head starts of SPACs over other listing processes.

Europe lags far behind the US in terms of maturity and momentum but is gradually warming up.

First, the ongoing easing of some European regulations is expected to foster a local appetite for SPACs. Amsterdam is successfully leading the post-Brexit transition for EU-listed securities. London intends to replicate the US model to a certain extent, in order to face its enhanced competitiveness imperative. For the record, the SPAC-friendly regulation in the US enables investors to hold shares in escrow until the completion of an acquisition, and then to conveniently withdraw their investment if they dislike the target company.

Second, liaising with one single sponsor instead of grinding in roadshows, securing funding beforehand, and increasing certainty on enterprise valuation are major benefits that startup founders shall not overlook. In addition, the European market is quite burgeoning in sectors that are most prone to SPAC listings, such as technology, fintech and insurtech, or life science. As they consist foremost of acquisitions, therefore based on financial forecasts, SPACs constitute a smart funding opportunity for innovative companies with strong growth outlook, compared to standard IPOs, which are mainly based on historical financial statements.

Finally, there is a perceptible increase in awareness among European investors that SPACs could become a privileged meeting point between the demand for venture and growth funding arising from the regional real economy, and the abundant supply by financial sponsors having absorbed part of the monetary mass expansion. From a global perspective, greasing these European financial cogs to hasten access to massive funding in strategic markets is the crux to remain competitive in the international scene. Certain European venture capital firms, initially hesitant, start to consider SPAC as a valid option to take up this tremendous challenge.

SPACs offer thus a not-to-be-missed opportunity to bridge the funding and visibility gap of European companies against competitors in a rather timely and expeditious manner. More than a passing fad, SPACs could become a strategic instrument for European economy, if properly focused and used. Paving the way to European SPACs’ success also implies to keep in mind that such listings are well-adapted for specific and sound projects only.

---

Edito | Odyssey's monthly newsletter | #11 - May 2021

To subscribe : odyssey.tech

Odyssey assists tech startups, SMEs, and large corporates in the end-to-end design and execution of strategic, M&A, and funding projects.

Please contact us for more info: [email protected]