LONDON SO FAR has missed out on the dizzying investment boom in special-purpose acquisition companies (SPACs) centred on America. Those that have come to Europe have conspicuously swerved the City, choosing Amsterdam, Frankfurt, Paris or Stockholm instead. On August 10th, in an attempt to change that, Britain’s Financial Conduct Authority (FCA) loosened its listing rules.
SPACs provide an unconventional means of taking private companies public. A dealmaker incorporates a shell company and lists it on a stock exchange, raising money from shareholders in order to find a private company worth buying. After finding one, agreeing a price and passing a shareholder vote, the two companies merge. The private company is now public, and the dealmaker is rewarded with a slice of ownership in the merged entity.
Until now, Britain’s rules around mergers put investors off. These prevented shareholders from selling their SPAC shares once a merger target had been found but before a full prospectus had been produced. That deprived them of the chance to make an early exit if they objected to the dealmaker’s choice of target. Instead Amsterdam, which has no such prohibitions, became Europe’s SPAC hub. According to Refinitiv, a data provider, SPACs have raised $3bn there this year, compared with a minuscule $6m in London. (Both are dwarfed by New York’s $110bn.)
The FCA hopes that removing the ban on share sales will tempt SPAC sponsors to list in Britain rather than the Netherlands. It is not alone. Advisers to the vehicles that applied to list in early 2021 describe the strain it put on Amsterdam’s financial infrastructure. “There were times when the Dutch regulator literally didn’t have enough people to read all the documents in front of them,” says a partner at an American law firm. “At a certain point investors get sick of being kept in a queue that might mess up their market timing.”
Still, the City cannot count on a SPAC frenzy. Jason Manketo of Linklaters, a British law firm, notes that even under the new regime the sponsor of a British SPAC will be forced to abstain from the merger vote. That puts them at the mercy of other shareholders and at a disadvantage compared with much of the rest of Europe, including Amsterdam. Meanwhile, raising capital in sterling to fund pan-European acquisitions introduces currency risk. Avoiding that would restrict the universe to British companies, which seem keener on leaving public markets than joining them. Moreover, many observers suspect the SPAC craze is already petering out. The FCA’s aim is laudable, but its market timing is off. ■
This article appeared in the Finance & economics section of the print edition under the headline “SPACs and the City”