- The London Stock Exchange is exploring how to attract special purpose acquisition companies to the UK, following a massive uptick in recent activity in the US, the Financial Times reported Tuesday.
- “The banks see an enormous amount of activity going on in the US and think ‘could that be replicated over here?’ They’re interested in it,” a confidential source told the FT.
- SPAC activity has swelled in the US this year. More than $48 billion has been raised so far in 2020 from US SPACs compared to under $14 billion in all of 2019.
- The FT said shareholders in the UK cannot vote on targets, or sell their shares, and exit as easily as US investors when dealing with SPACs.
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The London Stock Exchange is exploring how to lure so-called blank-check companies to Britain, following a boom in activity in the US, the Financial Times reported Tuesday.
More than $48 billion has been raised from 127 US special purpose acquisition companies in the US so far in 2020, compared to less than $14 billion from 59 SPACs in the entire of 2019, according to data from website SPACInsider.
A SPAC is created solely for the purpose of buying out an already operational company, using the proceeds of an IPO. The targets of these investments are often not disclosed before the public listing, meaning investors generally go in blind as to what they’re buying into.
With IPO activity sluggish in London, the London Stock Exchange is in early talks with how to encourage blank check activity in the UK, according to the FT.
“The banks see an enormous amount of activity going on in the US and think ‘could that be replicated over here?’ They’re interested in it,” a confidential source with knowledge of the matter told the FT.
The FT said investing in SPACs is more difficult compared to the United States.
In the US, shareholders get to vote on whether they approve the sponsor’s target company and can get their money back regardless of whether the target company is approved or not.
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However this is not the same in the UK. It is harder for investors to vote, or get their money back, but sponsors are able to include these two benefits. Investors usually only get to redeem their funds if the acquisition doesn’t go through within a specific timeframe of around 2 years.
“If you’re a UK institutional shareholder looking at that model – whether you know what the US model is or not – it doesn’t appear to be terribly attractive unless the team is led by well recognised superstars,” Paul Amiss, partner at legal firm Winston & Strawn told the FT.
When a UK SPAC purchases a company, the transaction is registered as a reverse takeover and the shares of the SPAC are suspended. Trading can only resume once a deal prospectus is published. That means there can be a significant time lag before SPAC investors can exit and recover their money if they do not support the take-over.
SPACs have become one of the hottest investment options on Wall Street in 2020, with several renowned players getting involved.
This week, former Uber executive Emil Michael joined the SPAC boom after filing for a public offering of $250 million for a tech-based blank check company.
Playboy Enterprises is set to return to the public markets via a SPAC merger with Mountain Crest Acquisition.
Billionaire Richard Branson announced last month he was looking to raise $400 million to fund a possible takeover via a SPAC.
Other prominent names include Gary Cohn, a former Trump adviser and one-time COO of Goldman Sachs, who moved to raise $600 million through the listing of a blank-check company in August and former House Speaker Paul Ryan, who plans to serve as chairman for a SPAC named Executive Network Partnering Corp.