Analysis: Europe's IPO market roars back to life but where are the SPACs?

Lilium NV

27/09/2021 06:00

* No European SPAC deals since July - Refinitiv data
    * Number of third-quarter IPOs highest since 2007 - data
    * Amount raised in European IPOs highest since 2011 - data

    By Arno Schuetze, Abhinav Ramnarayan and Toby Sterling
    FRANKFURT, Sept 27 (Reuters) - European stock market
listings have come back with a bang after the summer lull but
blank cheque firms are nowhere to be seen.
    So far this quarter, 42 initial public offerings (IPOs) in
Europe have raised $8.5 billion, the highest amount for a
decade, but there hasn't been special purpose acquisition
company (SPAC) deal since July, according to Refinitiv data.
    The SPAC frenzy in the United States during 2020 and the
first half of 2021 was widely tipped to spill over to Europe but
despite a flurry of activity before the holiday season, the
market appears to have fizzled out.
    "The SPAC IPO market is almost dead," said German
entrepreneur Christoph Gerlinger, who considered setting up a
SPAC but has shelved those plans to focus on his job as a
private equity manager investing in technology firms.
    A SPAC is a blank cheque firm that raises funds in an IPO
with the aim of merging with a private company. Once that
happens, the target becomes a listed stock, sidestepping the
traditional IPO route which is heavily regulated.
    SPACs became one of Wall Street's hottest investment trends
last year as many retail investors stuck at home during COVID-19
lockdowns placed speculative bets on them. 
    In Europe so far this year, SPAC issuance peaked in the
second quarter with 15 deals raising $3.7 billion, followed by
seven more in July worth $1.4 billion, but there have not been
any since, the Refinitiv data showed.  urn:newsml:reuters.com:*:nL8N2QG4SX
    Overall, 26 SPACs have listed in Europe this year, raising
$6.6 billion. Over the same period in the United States, 433 new
SPACs have raised $118 billion.
    The last time there were more European IPOs in a third
quarter was in 2007 with 99 deals and the amount raised was the
highest since 2011, when IPO proceeds came in at $9 billion,
according to the Refinitiv data as of Sept. 24.

    SELECTIVE ISSUES
    SPACs offer companies such as technology firms with high
growth potential but little near-term visibility on revenue and
profit an avenue to raise funds in a less onerous way than a
full-blown IPO.
    They also offer profit opportunities for SPAC sponsors -
usually well-known entrepreneurs - as well as investors, who get
the chance to buy into private companies via the stock market
rather than less liquid venture capital funds.  
    But SPAC sponsors and bankers say demand has dried up in the
face of poor performance, a regulatory crackdown https://reut.rs/3m6ezlU
 in the United States, and waning market sentiment.  urn:newsml:reuters.com:*:nL4N2PU3JY
    The European Union's markets watchdog also warned in July https://reut.rs/3kB5dyF
 that SPACs might not be for everyone due to risks of dilution,
conflicts of interests and uncertainty as to the identification
and evaluation of the target company.  urn:newsml:reuters.com:*:nL1N2OR0SH
    "I only expect selective new issues of quality SPACs coming
to market," said Christoph Stanger, co-head of equity capital
markets in EMEA at U.S. investment bank Goldman Sachs.
    In the third quarter globally, only 85 SPACs listed, raising
$14 billion, down from 309 SPACs raising $95 billion in the
first quarter, according to the Refinitiv data.
    While some investors in U.S.-listed shell companies made
fortunes overnight when the shares surged, many who held onto
their investments are nursing losses.
    "When an investor can buy an existing SPAC at a discount to
list price it's less attractive to buy a new SPAC," said one
equity capital markets banker. 
    
    HOMETOGO DEBUT
    In Europe, shares in the first company to be created via a
SPAC merger this year started trading last week, but with a
whimper rather than a bang.
    German travel tech startup HomeToGo  HTGG.DE , the target of
Lakestar SPAC I, backed into the Frankfurt stock market on Sept.
22 by completing its union with the listed shell company.
    HomeToGo's shares edged higher on the day, but were still
10% lower than the price Lakestar listed in February and 33%
below the peak the shell company's shares hit that month.
    European companies such as air taxi startup Lilium  LILM.O ,
car seller Cazoo  CZOO.N , payments firm Paysafe  PSFE.N  and
Global Blue  GB.N , electric vehicle charging firm EVgo  EVGO.O 
and cyber security company Arqit  ARQQ.O  have all successfully
gone public in the United States via SPAC deals. 
    But most are below their SPAC issue price, with a few
notable exceptions such as Arqit. Globally, about 60% of SPACs
that have bought their target company are now trading below
their issue price, analysts say.
    There was a different mood in the spring when the buoyant
U.S. market triggered the start of a European SPAC wave. 
    Tikehau Capital-backed Pegasus Europe  PACE.AS  raised $606
million in April followed by Hedosophia European Growth
 HEGA.AS  which raised $483 million, both listing in Amsterdam. 
    Then the market started to cool as investors realised the
hunt for targets was pushing up valuations, making investments
less attractive, analysts said.
    "Investors are currently unwilling to buy into new SPACs
while there are 423 SPACs with $131 billion in raised capital
out there waiting to find takeover targets," entrepreneur
Gerlinger said. 
    
    HERE TO STAY?
    German investor Primepulse, for example, explored a SPAC
deal this year and held some meetings with investors, but has
said it decided to drop the project due to waning demand.
    Many of the SPAC mergers that did get done also struggled in
the final stretch as some shareholders opted to redeem their
money rather than staying invested after the merger. Lilium, for
example, had redemptions of 66% while it was 37% for Hometogo.
    That meant SPAC managers had to put more of their own money
into deals, forfeit lucrative compensation or abandon the
mergers altogether. And SPACs that don't seal a merger within
two years of their IPOs have to return the money to investors.
    Rene van Vlerken, head of listing at Euronext Amsterdam -
which has attracted a number of Europe's SPAC deals - said the
current weakness would eventually be overcome.
    "There are a lot of SPACs in the market, all looking for
attractive business combinations. The market is waiting for a
number of good acquisitions by European SPACs," he said.  
    Giacomo Ciampolini, head of EMEA Alternative Capital at
Citi, also said the SPAC market would eventually rebound. 
    "SPACs have already started to arrive in Europe,
combinations have been announced and closed and there are many
sponsors, companies and investors who recognise the merits of
the instrument," he said.

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
U.S. SEC to scrutinize firms' digital-engagement practices as
investor worries grow     urn:newsml:reuters.com:*:nL4N2PU3JY
Beware of SPAC listings, EU markets watchdog tells investors   
 urn:newsml:reuters.com:*:nL1N2OR0SH
FACTBOX-Major European SPAC listings this year     urn:newsml:reuters.com:*:nL8N2QG4SX
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 (Additional reporting by Nadine Schimroszik; Editing by David
Clarke)
 ((Abhinav.Ramnarayan@thomsonreuters.com; 0044 751 745 1044;
Reuters Messaging: Twitter: @abhinavvr))