By Ben Dummett
Europe has missed the wave of initial public offerings of so-called blank companies, one of the engines of stock market activity in the United States this year. To help alleviate this shortage, the London Stock Exchange is looking at ways to ignite its market for such offers, according to a person familiar with the matter, amid the first signs of renewed interest.
The LSE declined to comment.
Blank check companies, often run by well-known investors including former Citigroup Inc. banker Michael Klein and New York hedge fund manager William Ackman, are publicly traded shell companies that use the funds raised. during an IPO to make an acquisition. In the United States, the vehicles, also known as Special Purpose Acquisition Companies, typically allow investors to vote on the acquisition of PSPC and redeem their money if they don’t like the deal. In some European jurisdictions, such as the UK, this is not a requirement.
In London, investors are also barred from trading shares of a PSPC from the time a deal is announced until the prospectus is approved. This means that investors can be tied to a deal they do not support for an indefinite period.
These differences are the main reasons why PSPCs have historically proven to be more popular in the United States, according to some bankers and investors, in part because they give their investors greater influence over any transaction. However, the various rules governing blank check offerings discourage these types of IPOs in Europe more than they have in years, as the fallout from Covid-19 is disrupting markets and businesses, pushing businesses to seek other sources of funding.
Europe this year failed to attract an IPO by SPAC until September 10, compared to a previous low of two in 2015 and a high of 13 in 2017 for the comparable period, according to the provider of Dealogic data. In contrast, the number of blank check IPOs in the United States more than doubled to 94 this year through Thursday compared to the previous year, and that amount is by far the highest level of last six years.
This divergence is also reflected in the overall IPO activity. The total value of European IPOs, including those involving blank check offers and the like, is down about 53% to $ 6.5 billion. Meanwhile, total IPO activity in the United States jumped about 62% to $ 78.1 billion, with PSPC IPOs accounting for about 47% of that total, according to Dealogic.
Investors are investing money in these vehicles in the United States, in some cases betting on executive teams who identify deals at discounted prices as companies struggle to manage their debt and access others. funding sources. The process can also provide the target with a faster route to becoming public.
The $ 300 million IPO of Broadstone Acquisition Corp. highlights both the drivers of the proliferation of PSPCs and the advantages that the US markets offer as places of listing. Broadstone’s management team is based in London and the company targets “fundamentally healthy but stressed companies in the UK and Europe” for an acquisition, according to its IPO. However, it is an IPO in the United States that was priced on Thursday and the company is listed on the New York Stock Exchange.
“The investment base is deeper and broader in the United States and this, combined with investor confidence in the model, makes fundraising for PSPC’s IPOs more achievable,” said Paul Amiss, London-based corporate lawyer at Winston & Strawn LLP, who is working on the Broadstone deal.
Yet in another indication that PSPC’s European IPO market is showing new signs of life, Martin Franklin, a well-known blank check sponsor, is currently leading a group that plans to raise around $ 750 million in a IPO of such a vehicle known as Harvester Holdings Ltd. and list it in London. Mr. Franklin’s former blank check companies include the LSE listing of J2 Acquisition Ltd., which raised $ 1.25 billion in an IPO in 2017. About two years later, it acquired APi Group for $ 2.9 billion and adopted the name of the specialist services contractor. . The stock is now trading around 44% since the deal was closed in 2019.
Mr Franklin favors the UK PPCS market in part because the rules prevent investors from buying back their investment in the vehicle. This gives an advantage to the competition for targets with high earnings and high cash flow by assuring the seller that the transaction can be funded without risk, he argued.
“When I enter into a transaction, I am on par with KKR, Blackstone, a large corporation – anyone who has the power to invest their capital with absolute authority,” Franklin said.
Write to Ben Dummett at [email protected]