SPACs (Special Purpose Acquisition Companies) are currently enjoying a significant boom. They are an investment vehicle which has existed since the 90s and essentially allow to startups to increase liquidity and go public without having to go down the traditional IPO route. The SPAC itself, also known as a “blank check” company, has no operations of its own. Instead, it gathers investors for its business plan, which will be to take its target company public and become operational through the activity of the target company. All of this must happen within a specific time frame, agreed between the SPAC and its investors (normally 24 months) and by the end of this period the SPAC will have either fulfilled its agreement and be fully operational (often taking on the name of the operational target company), or it must be liquidated. [1]

 

Interest in SPACs has grown since 2018, when some instances of successful IPOs through SPACs started appearing, with such successes encouraging further interest in the investment vehicle. [2] The proportion of SPAC IPOs has grown from quickly, from 4% in 2013 to 30% in 2020, totalling 248 deals worth $83.4 billion in 2020. [3] The boom has continued into 2021, with over 300 SPAC deals already being registered by the end of April. [4]

 

To many startups, SPACs can seem an attractive route to going public. The traditional IPO process is extremely rigorous, but by merging with a SPAC (which is public), the company can become public without having to go through the same scrutinising procedures. SPACs also provide capital and publicity that may be harder to come by if the startup continue to operate alone. It may bring more experienced management, which in turn would increase investor confidence and therefore capital for the company. Furthermore, the target company may be more protected from market volatility by going public via a SPAC as their stock price can be negotiated as part of the merger agreement. [5]

 

The SPAC market is currently very concentrated in the US, where around 300 SPACs have already been registered in 2021, compared to 7 in Europe and 6 in Asia. [6] [7] However, SPACs are gaining momentum in Europe and Asia too – one of the largest SPAC IPOs of 2021 so far was by Grab, a company similar to Uber and operating in Asia, worth $40bn and between 30 and 60 European SPAC listings are forecasted for this year. [8] [9] In Italy itself, since 2011 €1.3 billion have been invested in 12 Italian companies which have since been listed on Piazza Affari, and in this time period around 30 Italy-focused SPACs have been set up. [1] Despite these positive signs, however, in both Europe and the US are devising measures to better regulate these investment vehicles (such as having more checks of business plans or having to complete further due diligence), which may slow the market. [9]

Warnings have been issued about jumping on the SPAC bandwagon, with investors such as Warren Buffett saying that SPACs (and their celebrity attention) are causing inexperienced investors to get involved with them hoping for high revenue, which is dramatically increasing market volatility. [10] [11]

It is difficult to predict the future of SPACs in Europe and in general given their novelty and seeming volatility, especially as new regulations are introduced which will affect the way they work. However, it seems likely they will continue to be a ‘hot topic’ for some time, with some experts saying it is still too early to know whether they will continue to play a significant role in the IPO market as a whole, or whether they are simply a “bubble”. [9]