Boutique banks step in as some bulge bracket banks step out

A new crop of book-runners for special purpose acquisition companies has emerged in the US, as bulge bracket banks reassess their involvement amid heightened liability risks.

BTIG, EF Hutton and Maxim Group are among the firms climbing higher in the league tables while Citi, Credit Suisse and other banks scale back their exposure to SPAC deals, according to a review of Dealogic data.

The US Securities and Exchange Commission proposed a list of new rules on 30 March to enhance the disclosures and investor protections in SPAC initial public offerings and mergers.

One rule would deem underwriters in a SPAC IPO to be underwriters in a subsequent de-SPAC transaction when certain conditions are met, subjecting them to shareholder lawsuits.

As a result, some banks are steering clear of new SPAC IPOs and terminating engagement letters to private placement in public equity (PIPE) agents, one source said. Firms are even waiving entitlement to deferred underwriter compensation. “They are saying, ‘We don’t want it.’”

Firms need time to review the changing dynamics and how it affects costs, he said. “If I am a bank and all of a sudden, I have more liability, I need to be compensated for it,” the source said. Banks may need to hike their fees to cover increased due diligence, he added.

On Monday, Bloomberg reported Credit Suisse sent a staff memo to say it set up a committee to review pending de-SPAC transactions it is advising. Last week, Bloomberg reported Citi and other unnamed firms had stopped underwriting SPAC IPOs.

Other banks have also put their pens down to review the growing risks of underwriting SPAC transactions, sources familiar with the matter told this news service. “They won't say it overtly,” one dealmaker said. “What they'll say to a sponsor is, ‘Look, my committee didn't approve you.’ Some banks will say, ‘Okay, we'll try.’ It depends if they want to offend the person or not.”

Asked if they had scaled back their involvement in SPAC transactions, Goldman Sachs and JPMorgan declined to comment. Other banks, including Citi, did not return messages.

Deutsche Bank is “committed” to its SPAC business with the caveat that it “remains incredibly selective about who we work with,” a source at the German firm said Monday.

“We are not focused on league tables for league tables sake,” the source said. “We have been the SPAC sector’s biggest advocate for the last 15 years and are committed to being a long-term partner to premier sponsors like TPG and Gores.”

The product is ingrained within Deutsche Bank’s sales and trading divisions, this source added. “We want to help this market mature into a sustainable asset class. We believe it has an incredible useful role to play for our clients,” he said.

Sponsors with a proven track record can still get deals supported by the big banks, another source agreed. Firms want to be confident the sponsor can find a quality acquisition target.

Other underwriters are vetting SPACs more closely than they have before, a source said.

Banks shying away from SPACs are expected to remain in a defensive posture for the next couple of months, the sources speculated. While the institutions review their legal exposure and inner framework, they will also be watching to see which proposed rules become law.

“Once the rules get set the banks will react to them,” one of the sources said. “You know, these banks are greedy. Once they see one guy start doing IPOs again, the rest will follow.”

In other SPAC news:

• AEye [NASDAQ:LIDR] will look to expand the licensing of its software-driven light detection and ranging (LiDAR) systems through additional strategic partnerships in the automotive industry, and it may embark on a similar strategy in other sectors, said CEO Blair LaCorte. The Dublin, California-based company could look for partners to help it enter new markets like medical, LaCorte said. Partnerships can take various forms, including an exchange of equity, according to the CEO. AEye has a history of swapping stock for capital. GM [NYSE:GM], Hella [ETR:HLEA], Intel [NASDAQ:INTC], and Toyota-owned [NYSE:TM] Subaru are all strategic partners that invested in the USD 225m PIPE that backstopped AEye’s merger with a Cantor Fitzgerald-sponsored SPAC in August 2021.
• Crelate, a Kirkland, Washington-based recruitment platform for the talent industry, could consider private equity, a SPAC deal or an IPO in a couple of years, said Aaron Elder, CEO. The company recently raised USD 5m in a Series B round led by Five Elms and other existing investors that Elder said it plans to use to accelerate growth. It has raised USD 11m since 2011.
• Deeproute.ai, a Chinese autonomous vehicle technology solutions provider, is exploring going public in Hong Kong via a potential merger with a listed blank check company in about a year, according to two sources familiar with the situation. UBS is assisting the company to sound out the market for potential de-SPAC, the first source said. The Shenzhen-headquartered company will target to get listed on the city’s bourse with an enterprise value of around USD 1.4bn to USD 1.5bn, the first source continued. The self-driving technology developer has been approached by several potential SPAC candidates, but talks are still in the early stage, and the final decision is still subject to market change, the first and second source said.
• Hony Capital and IDG Capital are among the next batch of Chinese investment firms hoping to promote SPAC listings in Hong Kong this year, according to three sources familiar with the situation. Aside from business tycoons, Chinese PE and investment firms have been joining the HK SPAC queue. PE sponsors that have filed for Hong Kong SPACs include LionRock's Trinity Acquisition Holdings, Primavera Capital's Interra Acquisition and VMS Asset Management's Vivere Lifesciences Acquisition, as disclosed. PEs are actively looking to set up their own SPACs as it could be a new alternative to buy assets, one of the sources said. The Hong Kong bourse stipulates that SPACs must raise at least HKD 1bn (USD 127.6m) upon listing. Aquila Acquisition, which raised USD 128m in mid-March, became the first SPAC to list on Hong Kong’s Hang Seng Index.

Spotlight on SPACs' is a weekly column that tracks the latest news, data, and analysis on special purpose acquisition companies, drawing on proprietary intelligence from Mergermarket and Dealreporter, as well as data from Dealogic.