Alt Investments

Will Increased Regulatory Scrutiny Create London SPAC Boom?

Cliff Pearce, 19 July 2021

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Will reforms in the UK galvanise a SPAC market into the kind of rapid growth that has been witnessed in the US?

This news service has reported and commented on the phenomenon of blank-cheque companies, aka special purposes acquisition companies, SPACs. (See an example here.) These entities, which are raised to make acquisitions, have boomed in the US before cooling somewhat in recent weeks as US regulators hinted at reforms. On the European side, the market is far smaller, but with a few players in the field. What are the prospects for a SPAC boom in London? 

To address this question is Cliff Pearce, global head of capital markets at Intertrust Group. The editors are pleased to share these views; the usual editorial disclaimers apply. Email tom.burroughes@wealthbriefing.com and jackie.bennion@clearviewpublishing.com

Despite frustration over the SPAC backlog, the end result could be beneficial for institutional and retail investors alike.

The attraction of special purpose acquisition company (SPAC) transactions is swift completion. At three to six months, the process compares favourably with that of their longer established cousin, the IPO, which averages between six and nine months.

Now, however, greater regulatory scrutiny has led to a backlog of SPACs in the US. In the UK, Europe and Asia, a similar picture is emerging, largely for the same reasons. 

Regulators in these jurisdictions are running a fine-tooth comb through proposals, looking for apparently over-inflated SPAC projections (which IPOs avoid), “unqualified” sponsors (such as celebrities) and warrants reclassified as liabilities rather than as equity (warrants are usually the deal sweetener). 

For some regulators - the Netherlands’ AFM, for example - it is a matter of taking the heat out of the market to ensure that they have adequate bandwidth. SPAC bottleneck: can an IPO outpace a SPAC in 2021?

If you are a SPAC sponsor at the back of the exchange queue, all this might have you wondering whether the IPO route would be quicker than a delayed SPAC.

More IPOs were listed on the London Stock Exchange (LSE) in the first quarter of 2021 - 21 of them – than in any quarter since early 2018, according to Statista. In the same period just three SPAC IPOs were completed in the UK capital. 

There is frustration over delays, but some SPAC sponsors admit that the greater scrutiny may not be a bad thing. Chamath Palihapitiya, the Sri Lankan-North American billionaire investor dubbed the “Pied Piper of SPACs,” is among them. He has called for more oversight and regulation when it comes to his investment vehicle of choice. 

“It is time to improve the regulations around the SPAC ecosystem with clear and rigorously enforced standards to push for high deal quality and appropriate investor protections,” he wrote in a recent Bloomberg article.”

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