Europe’s start-ups latest target for Spac attacks

Chamath Palihapitiya is known as 'the King of Spacs'

Credit: Mark Kauzlarich /Bloomberg

Stadlen says: “For European venture capital firms this is a very exciting moment. Suddenly they can see a route for the best companies to go public, rather than relying on Big Tech to acquire them.”

The mechanics of going public using a Spac present some advantages. The process can be faster than the months of paperwork required with a float.

In recent years, investment banks have worked to engineer a “pop” on a float, meaning the listing company’s share price surges on its debut. This means money is left on the table for founders. A Spac provides a stable exit where founders can arguably get a better deal.

In the UK, electric van maker Arrival is expected to become the first in a wave of British Spac exits. It is planning to merge on to the Nasdaq, raising $660m at a valuation of $5.4bn. There are others potentially in the pipeline. Babylon, the virtual doctor app firm, is said to have received approaches from Spacs. Used car seller Cazoo is reportedly exploring a £6bn Spac exit, according to Sky News, as is connected car data start-up Wejo.

Alex Chesterman, founder of Cazoo. The firm has been linked with a Spac

Credit: Tom Stockill Photography

It is not just US investors that are in on the action. German venture firm Lakestar has filed a Spac in Frankfurt.

Bernard Arnault, the chairman of LVMH and Europe’s richest man, has launched a firm in Amsterdam. Matt Gehl, co-head of European investment banking at JP Morgan, says: “The Spac is a real viable alternative [to a float]. We will see lots of momentum across Europe in 2021.”

‘This Spac will self-destruct in two years’

In London, however, things are more complicated. UK listing rules mean companies may have to suspend their shares if a Spac takeover is announced.

Xavier Rolet, the former chief executive of the London Stock Exchange, and Matthew Elliott, the co-founder of Vote Leave, wrote to the Government arguing Spacs could “realise considerable benefits to credible British and European entrepreneurs”. They urged a review of UK capital markets to look seriously at enabling such mergers.

But not everyone is convinced. “Suddenly, all anyone is hearing about is Spacs,” says Jean Tardy-Joubert, a partner at Highland Europe and founder of the European office of Qatalyst.

“They are pushing a number of companies to go public that are not ready.” He also questions why the US regulator, the Securities and Exchange Commission, has not pushed for more scrutiny.

He says while many Spacs file prospectuses with detailed CVs for their directors, some of those leading the charge “have never done a tech deal in their lives”.

Most Spacs have a two-year lifetime, after which they return money to investors. The fear is this creates a race to the bottom as investors rush to get deals done.

“Like something from Mission Impossible – this Spac will self-destruct in two years,” Tardy-Joubert says.

For now, the Spac attack shows no sign of slowing down, and the inboxes of Europe’s founders are filling up fast.