London may soon get in on the Spac frenzy that has raised some $79.4bn across the globe already this year.
City lawyers are experiencing a surge of enquiries from clients, including private equity sponsors and venture capital investors, interested in floating special purpose acquisition companies in London following a proposed government-backed overhaul of UK rule on corporate listings.
“It has put UK Spac listings back into the hopper,” White & Case corporate partner Dominic Ross told Financial News of the 3 March listing review by Lord Jonathan Hill, a former EU financial services commissioner.
Spacs raise money on public markets in order to acquire private companies, often in fast-growing areas such as technology or healthcare. They are popular as going public through a Spac merger eliminates much of the uncertainty of IPOs, which have long lead up times and risk failing if they are launched into unfavourable market conditions.
So far London has seen just one Spac IPO this year — the $181m Marwyn Acquisition Company 1, which listed on 18 March.
Most of the Spac action in Europe is focused on financial centres with less restrictive rules, such as Amsterdam.
That could soon change. The Hill review recommended removing a rule that meant Spacs were likely to be forced to suspend trading once a target had been acquired, a requirement that has made London a less attractive option.
“Now that the suspension looks like it will be taken away, the conversation that we are having now is that London is a real alternative,” Ross said.
The Financial Conduct Authority plans to publish a consultation document by the summer with the aim of reforming the rules towards the end of the year.
Jason Manketo, a capital markets partner at Linklaters in London, said that the firm was advising clients on potential UK Spacs in anticipation of the rule change, which he said “could be implemented quite quickly if the government, Treasury and FCA chose to fast-track them”.
There has been $79.4bn worth of Spac IPOs globally this year, up from the $79.2bn raised in the whole of 2020, according to data provider Refinitiv. However, almost all of them have been listed in the US.
Manketo said that clients enquiring about listing Spacs in London were attracted by its lack of negative interest rates, familiarity with the capital market infrastructure and the fact that London has a deeper capital pool than the European exchanges. However, he said clients looking to float Spacs in the short-term were still gravitating towards exchanges such as Amsterdam and Frankfurt where current rules are less restrictive.
So far the Dutch city is proving to be the Spac hotspot on this side of the pond, according to Benelux law firm NautaDutilh, which advised the underwriters of the €250m IPO of ESG Core Investments, the first Spac listing on Amsterdam’s Euronext exchange in 2021.
Antonia Netiv, a capital markets partner at NautaDutilh, told Financial News that her firm was receiving enquiries from international and local banks, venture capital funds, private equity funds and individual former bankers about listing Spacs in Amsterdam.
“We are seeing new people asking for advice on Spacs on a daily basis,” she said. “It would not surprise me if we end up with 20 Spac deals this year in Amsterdam.”
James Roe, a capital markets partner at Allen & Overy, said: “There are enquiries about London, but the focus is currently on Amsterdam; people are executing deals in Amsterdam, and only thinking about London.”
NautaDutilh and White & Case are currently advising former UniCredit chief executive Jean Pierre Mustier’s Spac Pegasus Europe, which also plans to list in Amsterdam, while Linklaters is advising the underwriters.
Still, advisers are hopeful London will see more Spac listings this year in anticipation of a liberalisation of the rules. “I don’t think it will be long before people start pulling the trigger on IPO processes,” Ross said.
However, the proposed liberalisation of UK listing rules has not been universally welcomed. Russ Mould, investment director at AJ Bell, said that investors could end up “holding the bag” in the Spac frenzy.
“Is what is good for the seller, necessarily good for the buyer? Could this dash to ease the rules work to the detriment of investors, especially private ones?” asked Mould.
Roe said that the UK “needs to move quickly” if it is to establish itself as a European Spac centre.
“There is a significant risk that, if we don’t have revised rules by the second half of the year by that point in time, Amsterdam would have established itself as the natural place to list Spacs,” he said.
Netiv expected the London Stock Exchange and UK regulators to “find ways to make London in general attractive for Spacs”, but she was “doubtful” that such efforts would “mean there will be no more Spacs in Amsterdam”.
“By the time London gets up and running we will have at least a few deals here,” she said.
To contact the author of this story with feedback or news, email James Booth