Blank-check firms eye deals in Europe’s tech sector
The bronze charging bull in the financial district of New York City.
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LONDON – The SPAC craze is gradually gaining momentum in Europe.
After a banner year for so-called special-purpose acquisition companies in the USA, more and more blank check companies are collecting donations in order to found a European technology company.
SPACs are Shell companies founded solely with the aim of raising funds to acquire an existing private company so that the target company can bypass the traditional IPO process.
These blank check companies raised a total of $ 78.2 billion from 244 IPOs in the United States last year, according to Refinitiv. The US SPAC craze lasted through 2021, with an additional 134 companies raising nearly $ 39 billion since the start of the year.
The appeal of SPACs is that they allow companies to expedite a listing. Going public can be a much longer process, and some companies eschew the traditional route to avoid possible fluctuations in market sentiment. IPOs have also been criticized by venture capitalists like Ben Gurley, who fear they are undervalued.
SPACs provide an alternative to initial public offerings, as well as direct listings where companies sell existing shares to public market investors. They often attract high-growth technology companies. Last year, the British electric vehicle manufacturer Arrival announced an IPO as part of a merger with a US blank check company.
Mostly a US phenomenon
Europe largely missed the SPAC boom. Only three SPACs were listed in Europe last year, fetching $ 495 million. And so far this year, not a single SPAC has made its debut on the continent.
SPACs are not a new phenomenon, but they flourished in the US in 2020. Investors’ funds are held in escrow after a SPAC goes public, and shareholders can vote against the deal if they disagree with their money back.
Industry insiders say that SPACs in the US tend to be structured differently than in Europe. Europe has far fewer publicly traded tech companies than America, making it more difficult for investors and analysts to make comparisons and evaluate companies in the sector.
Looking to attract more SPACs, the London Stock Exchange has contacted law firms and banks to see if they can facilitate listing such vehicles, a source familiar with the matter told CNBC.
The person preferred to remain anonymous as the conversations were not made public.
In the meantime, the UK has started a review of its listing rules to bring more tech companies to market. Europe as a whole had a decidedly quiet year in terms of tech IPOs last year, while the US saw numerous big debuts from DoorDash and Airbnb.
“Unfortunately, interesting and attractive companies in Europe do not have the same access to capital in the private or public markets as they do in the US,” said Makram Azar, CEO of Golden Falcon Acquisition Corp, a SPAC focused on European technology, said CNBC “Street Signs Europe” Friday.
“For example, the venture capital pool in Europe is much smaller than in the US and the IPO market is very weak.”
Offers in progress
More and more blank check companies are listing in New York with the aim of buying a European tech company.
Azar, the former chairman of European banking for Barclays, raised $ 345 million for his SPAC in an initial public offering in December. Golden Falcon wants to win a European “champion” in the fields of technology, media and telecommunications (TMT) or fintech.
“There are over 60 TMT and fintech unicorns in Europe,” with more than 20 based in the UK. Azar added that he saw “very attractive companies” in the region.
Fintech has been a particular boon to the European tech sector over the years. Adyen, an Amsterdam-listed payment company, more than doubled its share price from last year. And in the private markets there are more and more valuable companies like Checkout.com and Klarna.
Another SPAC, North Atlantic Acquisition Corp, raised $ 379.5 million in its initial public offering last month. The company is primarily looking for consumer, industrial and TMT destinations in Europe.
“It’s an interesting market in Europe,” said Gary Quin, CEO of North Atlantic Acquisition Corp and former vice chairman of Credit Suisse’s investment banking division in Europe. “We see a pipeline of deals from different areas.”
Quin said he expected his SPAC “sometime between January and two years” to sign a deal with a European company.
Some European companies are already considering a merger with SPAC companies.
A SPAC called over 10 European technology companies shortly after it went public, a source familiar with the matter told CNBC. The person preferred to remain anonymous as the discussions were sensitive.
SPACs cannot determine potential merger targets until they are listed.
Europe has often been seen as technologically lagging behind the US and China, but the region is growing rapidly. European startups raised a record $ 41 billion last year, according to London-based venture capital firm Atomico.