The Bronze Charging Bull in the financial district of New York City.
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LONDON – The SPAC craze is starting to gain momentum in Europe.
After an exceptional year for so-called special-purpose acquisition companies in the United States, an increasing number of blank check firms are raising funds with the intention of snapping up a European technology company.
SPACs are shell companies created 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 in 244 US IPOs last year, according to data from Refinitiv. The US SPAC craze continued into 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 speed up their listing on the stock market. An IPO can be a much longer process, and some companies are avoiding the traditional route to avoid possible fluctuations in market sentiment. IPOs have also drawn criticism from venture capitalists like Ben Gurley, who fear their price is underestimated.
SPACs offer an alternative to IPOs, as well as direct listings where companies sell existing shares to public market investors. They often attract high-growth technology companies. Last year, British electric vehicle maker Arrival announced a deal to go public through a merger with a United States blank check firm.
Mainly an American phenomenon
Europe almost missed the SPAC boom. Only three SPACs listed in Europe last year, raising $ 495 million. And no SPAC has debuted on the continent so far this year.
SPACs are not a new phenomenon, but they flourished in the US in 2020. Investor funds are held in a trust account after an SPAC completes its IPO, and shareholders can vote against the deal if they don’t agree and get their money back .
Industry experts say that SPACs tend to be structured differently in the US compared to Europe. And Europe is home to far fewer publicly traded technology companies than the United States, which makes it more difficult for investors and analysts to make comparisons and benchmarks in the industry.
The London Stock Exchange is trying to attract more SPACs and has contacted law firms and banks to see if they can facilitate the listing of such vehicles, a source familiar with the matter told CNBC.
The person preferred to remain anonymous as the talks were not released.
Meanwhile, the UK has launched a review of its listing rules in an attempt to attract more technology companies to the market. Europe as a whole had a markedly quiet year in terms of technology IPOs last year, while the US saw a flurry of big name firsts like DoorDash and Airbnb.
“Unfortunately, in Europe, interesting and attractive companies do not have the same access to capital as they do in the United States, neither in the private domain nor in the public markets”, Makram Azar, CEO of Golden Falcon Acquisition Corp, a SPAC focused on European technology , told CNBC’s “Street Signs Europe” on Friday.
“The venture capital pool, for example, is much smaller in Europe than in the USA and the IPO market is very weak.”
Ongoing offers
An increasing number of blank check companies are listing in New York with the aim of buying a European technology company.
Azar, the bank’s former president for Europe at Barclays, raised $ 345 million for its SPAC in an IPO in December. Golden Falcon is looking to take a European “champion” in technology, media and telecommunications (TMT) or a fintech audience.
“There are more than 60 TMT and fintech unicorns in Europe,” more than 20 of them based in the UK, said Azar, adding that he sees “very attractive companies” in the region.
Fintech has been of particular benefit to Europe’s technology sector over the years. Adyen, a payment company listed in Amsterdam, saw its share price more than double year on year. And there are more and more valuable companies in the private markets, like Checkout.com and Klarna.
Another SPAC, North Atlantic Acquisition Corp, raised $ 379.5 million in its IPO last month. The company is mainly looking for customers 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 are seeing a flow of business coming from a few different areas.”
Quin said he expects his SPAC to secure an agreement to combine with a European company “sometime between January and two years from now”.
Some European companies are already thinking about merging with SPAC companies.
A SPAC had more than 10 European technology companies calling shortly after its IPO, a source familiar with the matter told CNBC. The person preferred to remain anonymous because of the delicate nature of the discussions.
SPACs are not able to engage potential merger targets before they are listed.
Europe has always been seen as lagging behind the USA and China when it comes to technology, but the region is growing rapidly. European start-ups raised a record $ 41 billion in financing last year, according to London-based venture capital firm Atomico.