Going public by blank check: what SPACs offer European companies

In a traditional IPO, a private company works with investment banks and financial analysts to make its way to the stock market while meeting extensive requirements, reviews and conditions. The process takes a long time, involves very detailed scrutiny and is expensive. SPACs, on the other hand, are so-called blank check companies. They are formed with the sole aim of taking over a private company. A SPAC has no business operations of its own. It exists only to go through the formal steps of a listing. After that, it looks for investors. When raising money, however, it must disclose that it is an empty shell. Potential investors therefore often do not know exactly which company the SPAC will end up acquiring. At that stage they are usually told only about the financial criteria and the industry the SPAC managers have in their sights. That is why the management team behind a SPAC plays such an important role. Anyone who has already built a trusted name in finance will find it easier to attract investors. Hedge fund heavyweight Bill Ackman, for instance, raised four billion US dollars for his SPAC in July 2020, in the early phase of the pandemic; it was later used to buy a stake in Universal Music Group. Richard Branson is another well-known SPAC fan: among other deals, he used the route to take the popular DNA testing company 23andMe public. Branson has hinted that he wants to set up his next SPAC in Amsterdam, strengthening in Europe a trend already established in the USA.

• Time savings: a traditional IPO of a private company can sometimes take several years. SPACs, by contrast, can be set up within a few months. Once the SPAC is already listed, the merger of the two companies takes far less effort.
• Fixed prices: because a SPAC is formed to acquire a private company, the price is negotiated in advance between the parties involved. The private company is therefore not exposed to the same market swings as in a regular IPO, which gives it more financial certainty. This was surely a key reason so many SPACs were formed during the pandemic.
• Less rigorous scrutiny: since SPACs are not operating companies themselves, their path to the stock market is often easier. The capital comes from investors, and the finances are far simpler than those of a company that has been trading for years. Valuing the IPO is also more straightforward.

While the US stock market boomed thanks to SPACs in the middle of the pandemic, things have stayed quiet in much of Europe. Yet the SPAC boom could give European entrepreneurs a real boost. After all, going public is the goal of every growth company looking to attract capital. Right now, Amsterdam is considered to offer the best rules in Europe for setting up a SPAC. Former Commerzbank CEO Martin Blessing is also a SPAC advocate. He set out to take a fintech company public through a European SPAC. The shell company, called European FinTech IPO Company, originally aimed to raise up to 415 million euros. In the end it raised 383 million. And Martin Blessing has since found his target, though not a fintech. Instead he set his sights on the Dutch company Azerion, which places ads in online games and is valued at 1.3 billion euros on listing.

Last September, the travel platform HomeToGo made headlines with its SPAC listing. The platform was acquired by the Lakestar SPAC of well-known start-up investor Klaus Hommels. The target capital, however, was not reached. HomeToGo had hoped for 350 million euros. Shareholders in the Lakestar SPAC were supposed to swap their shares for HomeToGo shares, but around 37 % of them voted against it. In the end, the starting capital came to about 250 million euros, 100 million less than planned. The Lakestar SPAC had been listed since February 2021 and had been searching for the right company ever since. This example makes clear how much investors' trust in a SPAC's management matters: if the wrong company is acquired, the dream of outsized returns will not come true. But SPACs certainly offer ideal conditions for accelerating a company's growth.

The successful listings of the SPACs run by Martin Blessing and Klaus Hommels show that a SPAC is a genuinely interesting alternative to the traditional IPO route. If you are interested in setting up a SPAC, we are happy to support you with the related risk and suitability assessment, and to give you more detail on the exact process and the formal steps required. Find out more about entering the US market and read more updates under News.

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