2020 was a year dominated by COVID-19 and Brexit but in the financial pages the discussion surrounding SPACs was an increasingly popular topic, especially in the US. There were regular headlines about the bumper year with SPACs raising $73 billion in 2020, outpacing traditional IPOs according to Goldman Sachs. Specific high profile SPACs such as Virgin Galactic, DraftKings and Nikola pushed the agenda further. The pace has not let up in 2021 and the move away from the traditional IPO as a means of raising capital appears to be structural in nature, which has given rise to dedicated market participants, both on the asset management and investment banking side.
Perhaps this surge in activity was partially driven by the lockdowns caused by COVID-19 and the difficulties this caused traditional IPO road shows. But SPACs or “blank check” companies are nothing new and the rationale, advantages and characteristics of using these vehicles are now more widely understood. The fact that private equity firms have collectively embraced SPACs as part of their strategic focus is signalling this structural change for raising capital, with private equity sponsored SPACs grabbing many of the recent headlines. A focus on the investor favourable redemption rights for SPAC shareholders who can vote in favour of a transaction, whilst redeeming their ordinary shares, but retaining an interest in separately traded warrants has been key to the surge in activity, as well as the backstop support from the PIPE (Private investments in Public Equity) market.
Back in Europe the industry keenly observed the activity in the US and unsurprisingly focus has now shifted to how 2021 and beyond might look for our own SPAC rush. Previously Cayman and BVI companies listing on NASDAQ or NYSE has been the route of choice. But what will the future hold for Europe? Almost inevitably the opportunity already feels political and for now Euronext Amsterdam has taken the lead as the front runner for European SPAC listings. As a result the European company (SE) incorporated in Luxembourg and the Dutch private company with limited liability (B.V.), both combined with US style redemption rights, have been common choices for recent European SPACs. The first European SPAC of the year was raised by ESG Core Investments and focused on the environmental, social and governance area, they chose Euronext Amsterdam for their €250 million offering and in the last few weeks the first dedicated European Fintech focused SPAC was launched raising €415 million.
On 3 March 2021, the UK government has responded with the headline grabbing recommendations offered by Lord Hill following the UK Listings Review. These recommendations include the use of dual class share structures to give founders more control, US Style redemption rights when the de-spac process occurs, reduction to free float requirements to avoid diluting early backers, removal of the presumption that trading in a SPAC’s shares should be suspended on announcement of an acquisition, the facilitation of forward-looking statements in prospectuses and a general simplification of the prospectus regime. Despite some commentators referring to proposals as radical, Lord Hill commented that the recommendations were “not about opening a gap between us and other global centres by proposing radical new departures to try to seize a competitive advantage…they are about closing a gap which has already opened up”. The real question is whether the UK can move quickly enough before their European neighbours to get a real foothold in this growing market.
Focussing closer to home, Jersey is exceptionally well positioned to become the offshore European SPAC jurisdiction of choice. This will no doubt gather pace when the UK listing rules change and it is important to note that even now Jersey companies can issue uncertified shares on a number of stock exchanges, including the LSE, the NYSE, NASDAQ and the HKSE. Open channels of communication with our regulator add to the options available if there is a demand (such as listing on Euronext Amsterdam) and alternatively depositary interests/depositary receipts can be listed on any exchange. Jersey companies are incredibly flexible and user friendly which is a real plus when it comes to the de-spac transaction process. When centrally managed and controlled in Jersey, they offer a position of tax neutrality. In addition Jersey has a well-developed financial services infrastructure including law firms, banks, administrators, insurers and auditors are all ready and willing to help.
Another avenue that could increase the islands appeal is the ability for SPACs to be listed on The International Stock Exchange (TISE). TISE is encouraging issuers to utilise its exchange and are actively highlighting the flexibility afforded by its escrow requirements, combined with a 36 month timeframe for a Qualifying Acquisition and an extremely competitive and transparent fee regime. Liquidity might be drawback, especially for some of the larger SPACs, but it is certainly another string to the bow and a possible lower cost solution which means Jersey will offer a workable solution for all shapes and sizes of SPACs as the European market develops.