SPAC fever is cooling off, and that’s good. Due to the frenzy of global issuance last year — 613 initial public offerings valued at about $500 million — there are now a little more than 650 special-purpose acquisition companies (SPACs) in existence with $170 billion in proceeds. They are all searching for a rather limited target pool, which isn’t good.

This year, due to the backlog waiting to close, significant capital is likely to be added to the total now awaiting deployment. Despite that hangover, a much more rational approach in SPACs is emerging, even if getting there won’t be enjoyable.

[Ed. note: The insights shared in this article were current as of March 2, 2022, and may have changed since that date.]

SPAC Liquidations on the Horizon

The number of SPAC liquidations is likely to rise significantly in coming months, up from only one SPAC in 2021. But that will be better than the alternative — zombie SPACs. Those are SPACs that can extend their charter essentially forever if they keep depositing cash in the trust account. If all investors redeem, bare minimums will be left in the shell SPACs, which will become zombies. Those existing but lifeless creations would have a continuing negative effect on the SPAC market.

Regulatory Scrutiny

There also will be more regulatory scrutiny of SPACs, which in the short run will cause pain but in the long run will be beneficial. The SEC has made cracking down on SPACs a top priority, with the goal seeming to do away with misleading information. That isn’t a negative.

Market Sentiment

What is negative currently, and probably overly so, is market sentiment. The average share price of a SPAC last year was $18; now it’s $6.36. Last year, 78% of SPACs were trading above their IPO price; today just 13.2% are. The market clearly has corrected, and probably has swung so far that many SPACs are seriously undervalued, which may present an interesting opportunity for the private equity space.

European SPAC Outlook

Against this backdrop, I’m enthusiastic about the European SPAC market and very bullish on EMEA, which I believe will be the new boomtown. More than 1,000 unicorns are being minted in Europe, and the number will continue to grow. Private capital is pouring into the market and valuations are going up. There is going to be a great need for exits, and SPACs provide a suitable exit for the right company.

Many high-quality teams are being developed across EMEA. When a European team takes a European company public, it has a home-field advantage over Americans. We haven’t seen that play out yet because the trend is just starting, but having a local edge will greatly favor overseas SPAC sponsors. Last year, just under 7% of deals were globally focused. Now, that number is about 90%, so that’s where we are headed.

Because they are so busy dealing with the deals they brought public last year, American teams don’t have time to search for good non-U.S. companies. At the same time, European exchanges have changed their rules to be more accommodative to SPACs. The Netherlands has led the way with changes in Amsterdam, and the U.K. has made changes too, so the British are going to be picking up steam. Watch for France, Sweden, Germany, Finland, and Italy to follow, along with Singapore and the United Arab Emirates. Hong Kong, in fact, is making concerted efforts to attract high-quality teams with capital. As a result, look for last year’s roughly 35 non-U.S. listings to grow. More companies are going to be comfortable using a SPAC to go public, and experience has shown that SPACs are an attractive vehicle structure for sponsors.

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About Benjamin Pell

Benjamin Pell is the founder and Managing Partner of Verdene Group, a private investment company that acquires and builds businesses through strategic platforms including special purpose acquisition companies (SPACs). Benjamin also works with private equity groups, hedge and venture funds, investment banks, family offices, and select management teams to evaluate, create, and implement alternative investment strategies with a focus on acquisition vehicles. He has 12 years of expertise regarding SPACs and has significantly contributed to the adoption and growth of the vehicle within the private equity arena.

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This financial industry article was adapted from the GLG Roundtable “SPACs — European Trends: Market Update and Outlook.” If you would like access to events like this or would like to speak with financial industry experts including Benjamin Pell or any of our approximately 1 million industry experts, please contact us.