SPACs in the UK and Europe

Special Purpose Acquisition Companies (“SPACs”) have found particular favor in the United States over the past two years as an alternative to the traditional IPO structure, with capital raised by SPACs in the US in Q1 2021 alone exceeding the already-record 2020 annual total of $87.9 billion USD. However, in recent months, SPAC activity has slowed substantially, dropping 82% by the conclusion of Q2 2021 — with some citing concerns around a lack of viable targets for de-SPAC transactions.[1] As at September 14, 2021, approximately three quarters of traded SPACs had not yet identified targets.

This slowing momentum is no doubt exacerbated by increasing regulatory pressure from the SEC. A record deal announced by Pershing Square to be effected via their record-sized $4 billion USD vehicle fell through as a result of regulatory concerns raised by the SEC. The SEC also recently levied an $8 million USD penalty against Stable Road, its sponsors and its CEOs ahead of its de-SPAC transaction as a result of misleading claims and a failure to meet due diligence obligations. Other SPACs are said to be under active investigation by the regulator.

In light of this market slowdown and growing SEC skepticism, the London Stock Exchange and other European exchanges appear hopeful that SPAC activity will pick up over the coming months on the other side of the Atlantic, where SPAC activity has been markedly more limited: in 2020 and H1 2021, UK and European exchanges saw fewer than 30 SPACs launched in total. This is not for a lack of potential SPAC targets — a number of European companies, such as UK electric vehicle group Arrival and UK online car retailer Cazoo — have successfully attracted US SPAC investment.

In London, lower SPAC activity is historically attributable in part to the UK's comparatively less SPAC-friendly regulatory environment, most notably the presumption that trading in a SPAC’s shares would be suspended upon announcement of an acquisition. This made a UK SPAC highly unattractive for investors who, following announcement of a prospective target, would be “trapped” in the company.

However, following a consultation in April of this year, on August 10, 2021 the UK’s Financial Conduct Authority (“FCA”), the regulator for UK-listed companies, amended the UK’s Listing Rules to remove the presumption of suspension of trading for larger SPACs meeting certain transparency standards and investor protection requirements, including (amongst other things):

• raising minimum gross proceeds of £100 million from public shareholders on first IPO;

• implementing a third-party ring-fencing arrangement in respect of capital raised from public shareholders, with capital preserved for use as consideration in a de-SPAC transaction or to be returned to investors if the SPAC fails;

• obtaining certain corporate approvals for the acquisition; and

• making available an option for investors to redeem or purchase their shares before completion of the acquisition (regardless of how they voted in the acquisition).

The FCA noted that these rules were aimed in part at promoting UK SPACs as “appropriate opportunities for investors and issuers to access UK capital markets.” Whether these changes, which at the time of this writing have been in force for little over a month, will herald a substantive uptick in UK SPAC activity remains to be seen.

In parallel with the UK’s efforts, however, other European exchanges continue to jockey for the position as Europe’s market leader in SPAC transactions. Euronext Amsterdam, by some accounts, has emerged as the leading forum for European SPACs, hosting a number of high-profile SPACs over the past year.

Following a successful IPO on Euronext Amsterdam, EFIC1’s CIO Ben Davey remarked that Amsterdam is a highly attractive European venue for SPAC transactions due in part to the highly collaborative approach of the Dutch regulator — no doubt a particularly attractive proposition given the relatively less-tested nature of the European SPAC model. Indeed, recent activity suggests the markets will continue to look towards Amsterdam, with LVMH’s founder Bernard Arnault and ex-UniCredit CEO Jean Pierre Mustier opting to list their SPAC, Pegasus Europe, in Amsterdam.

Frankfurt’s Börse also remains an attractive option due to its similarly flexible regulatory environment and access to the European capital markets — the exchange’s executive, Peter Fricke, estimated that the exchange could see up to a dozen listings during 2021. Indeed, the successful merger of HomeToGo via a Börse-listed SPAC was announced in a $1.2 billion USD deal this past July.

Some analysts have suggested that the European market will in total see 30-40 SPACs launched in H2 2021, with up to 15 of those choosing to launch in London. However, as a result of this recent activity, it remains unclear how the SPAC market in both the US and Europe will evolve over the coming months.

Sam Cadd is an LL.M. candidate in corporation law and serves as a Graduate Editor of the Journal of Law & Business. She was previously a corporate associate at Slaughter and May in London.

[1] i.e., the SPAC’s merger with a target company.