US snatching up European SPAC targets

Following the US SPAC boom of 2020 and Q1 2021, many US-based SPACs are snatching up European targets for high valuations.

SPAC activity in the US reached new heights in Q1, with many firms now surveying the market for new potential targets. In their search, they are increasingly looking to Europe.

“It’s the Americans who figured out that there’s a buying opportunity [in Europe],” Hussein Kanji, partner at Hoxton Ventures, told Venture Capital Journal. “A bunch of the SPAC [mergers] that are being done in Europe are largely led by American SPACs.”

Since August 2020, a total of 12 US-based SPACs have acquired European targets, according to data from Dealogic. Total US SPAC mergers came in at 96 for 2020 and 155 for 2021 through early July, according to Dealogic.

In one high-profile example, ex-Groupon co-founder Rich Williams’s SPAC Alkuri Global Acquisition Corp last month announced its plans to merge with London-based healthcare app Babylon Health, a Sweden-based Kinnevik portfolio company. Additionally, US investor Dan Och’s Ajax acquired British used car dealer Cazoo at a $7 billion valuation announced in March.

Europe has lagged behind the US in SPAC activity, which could partly be chalked up to market speculation and partly to how Amsterdam is largely the only jurisdiction where listing a SPAC makes sense. The remainders are often choosing to list on US exchanges.

“The UK legislation hasn’t caught up with the American legislation to allow SPACs,” Kanji noted. “The only real place you can list a SPAC right now in Europe is Amsterdam.”

While it is easiest for SPAC sponsors to list in Amsterdam, it is possible to list elsewhere. For example, UK-based Marwyn Acquisition Company II Ltd is listed on the London Stock Exchange and France-based 2MX Organic SA is listed on Euronext Paris.

But many are choosing to list on US exchanges. Of the eight European SPACs that completed an IPO in 2020, only three chose to list on European exchanges, raising roughly €410.8 million, compared with €1.37 billion raised by European SPACs on US exchanges, according to S&P Global Market Intelligence.

US markets have a clear competitive edge when it comes to listing SPACs, as the US exchanges have been for decades. But now, other markets are working to make the strategy a mainstay.

“It’s very clear that in both German and Dutch markets, and presumably London as well, they are working as hard as they can to create the technology, infrastructure and regulatory frameworks to enable domestic, or local SPACs,” Matthew Goldstein, co-founder and SPAC head of M12, Microsoft’s venture frim, told VCJ. “But it’s taking some time.”

Some naysayers argue that SPACs are too risky or too volatile to remain a mainstay in capital markets going forward. For many market segments, that could still be true. But with venture capital, the SPAC merger is uniquely aligned.

“SPACs in a lot of ways are like venture,” Goldstein said. “The SPACs are raised, the sponsors are incentivized to go find and execute a transaction. So we will continue to see a lot of them happen.”

But an added degree of oversight might be necessary to make the strategy less volatile going forward.

“We need to challenge them and make sure that [sponsors] are confident these are public ready companies appropriately priced,” Goldstein said.

SPAC participants should expect some degree of failure throughout this cycle, Goldstein said, but the lessons learned from this time around may smooth out the difficulties for the market ahead.

“Some sponsors won’t successfully find a target and won’t execute a transaction,” he said. “That’s okay too, some things need to wash out.”

“I don’t know if we’ll ever see anything quite as frenetic as Q1 [2021], but they’re not going away.”