The pandemic has brought blank cheque vehicles back into the limelight luring in some big names on both sides of the Atlantic.
With backing from the likes of Richard Branson, former US commerce secretary Wilbur Ross, City grandee Martin Gilbert and even the boss of the LSE, the vehicles known as special acquisition companies (SPACs) provide a quick and easy way for private companies to go public.
But what are SPACs and could we see a surge of deals in London using them this year?
What is a SPAC?
Spacs are created to raise capital through a public listing with the purpose of acquiring an existing company.
They are generally formed by investors with expertise in a particular industry with the intention of pursuing deals in that area and offer private companies a faster and more predictable way to go public.
Terms usually require the vehicles to secure a deal within two years or return cash to investors.
Founders negotiate with the Spac and sponsors to fix the price they’ll receive before registering to go public.
Once the target is bought that business takes over the listing and begins life as a public company.
Why have SPACs become so popular recently?
The initial catalyst for the renewed interest in Spacs was the dearth of regular IPOs as a result of the pandemic.
On the outbreak of the virus activity fell off a cliff and it presented an opportunity for investors to pile into Spacs.
Blank cheque vehicles raised a record $81bn in 2020, according to Pitchbook, more than six times the sum recorded in the previous year.
Billionaire investor Chamath Paliphapitiya has been a huge Spac backer, raising money for six vehicles via his vehicle Social Capital, with one taking Richard Branson’s Virgin Galactic public.
Hedge fund veteran Bill Ackman raised a $4bn Spac last summer, while former Credit Suisse boss Tidjane Thiam recently announced a $250m vehicle in New York to invest in financial services businesses.
Pandemic aside, there are fewer regulatory hurdles than IPOs, companies get access to public markets faster and investment banks like them because they bring in huge fees.
One of the key selling points is that investors can invest alongside sponsors with industry expertise and the profile of a sponsor is an important one.
Electric vehicle startups have become the hot topic for Spac investors. In the past week alone, European battery maker Freyr and US startup Microvast both announced Spac plans.
Some are raising the bar even higher. Astra, a startup that makes small rockets, announced this week it had merged with Holicity to go public via Spac in a valuation of $2.1bn.
Will there be a rise in London SPACs?
London is bracing for a busy year for IPOs in the technology sector but with the pandemic still delaying activity Spacs may be another option for private firms.
Last week the chief executive of the London Stock Exchange David Schwimmer said there had been “increasing curiosity and potential interest” in Spacs in the City.
“We do think there are opportunities in the UK listings regime to make some changes that would make us a more attractive listing regime while maintaining high standards of corporate governance,” he told Reuters.
However, Spacs are not eligible for listing on the LSE’s premium segment because they don’t meet the independence and track record requirements, but they don’t apply to a listing on the standard segment.
Arguably a London-listed Spac is more attractive to a big name sponsor because they don’t need shareholder approval to complete the acquisition unlike in the US.
There have been some Spac listings in London in recent years but nowhere near as many as on Wall Street.
But if the impact of the pandemic on the market continues investors may well turn to these shiny new vehicles.