The wave of European special purpose acquisition company (SPAC) IPOs has largely dissipated into a foamy froth as vehicles wrap up without completing M&A transactions, but the actions of two veteran SPAC issuers in recent weeks could point to signs of life for the product.
Last week a Sir Martin Franklin-backed SPAC, Admiral Acquisition Ltd [LON:ADMR] raised USD 550m in a London IPO, the largest UK new listing this year and Europe’s first SPAC IPO this year, according to Dealogic.
Franklin is no stranger to the asset class, most notably pricing the USD 1.2bn IPO of J2 Acquisition Ltd in 2017 which acquired US firm API Group [NYSE:APG] in 2017.
Alongside the launch of Franklin’s lates vehicle, it was announced last week that Industrial Stars of Italy 4 [BIT:IN4], a vehicle backed by Italian SPAC veterans Giovanni Cavallini and Attilio Arietti, had reached an agreement to merge with Italian IPO candidate Sicily by Car.
Both bits of news represent good tidings for a market that has been severely lacking anything to be optimistic about. European SPACs have in general found little luck in completing acquisitions before their deadlines, with most having to wrap up and return money to IPO investors.
Of the 71 SPACs that have priced on European exchanged since 2018, only 21 have completed a merger, the other 47, representing a deal volume of around USD 6.4bn, have had to hand the money back to investors, according to Dealogic.
Finding targets that satisfy the often-lofty merger expectations set when SPACs list is difficult, and new US-style SPAC structures that give SPAC shareholders more freedom to reject an acquisition and redeem their cash, which means there is a far higher chance of failure.
The competition for European assets is also intense, given that most European SPACs, unlike Franklin’s J2 Acquisition Ltd, tend to target European companies.
A vast disparity between the volume of European SPAC acquisitions vs the volume of SPAC IPOs in Europe since 2018, cannot just be explained by increased PIPE financing to complete acquisitions.
The trend points to an increasing number of European SPAC targets being bought by vehicles from other exchanges, typically US, meaning that not only do European vehicles for quality targets to satisfy their shareholders, but they also have to compete with US buy-out vehicles for the same deals.
But a seasoned sponsor, like Franklin, Cavallini and Arietti, can have greater success.
One SPACs issuer said first-time vehicle sponsors underestimate the effort needed throughout the process, but the credibility that comes from previous dealmaking makes targets more amenable to sit down and talk through offers – talks that go nowhere can then be reignited later for a new vehicle.
It makes a difference in a tough market where talks often fail.
An ECM banker said several of his IPO and sale mandates had initially started as SPAC merger talks which had gone nowhere. Only a few SPACs are still actively looking for targets across Europe though, he noted, with just a few more combination deals expected in the second half of 2023.
In the land of the SPAC, the experienced man is king.
