It now looks as if investors in London will, just as their US counterparts have for a while, be offered the curious privilege of handing over lots of money to management teams who promise to spend it on some great deals, even if what they are actually going to buy is still kept carefully under wraps.
Marwyn, a London-based sponsor of acquisition companies, has announced plans for a £500m acquisition vehicle to be listed in London.
At the same time, Sky News reported that a £150m acquisition vehicle called Finsac, set up by former executives from KBN and Munich Re, would be listed in London soon. There could be plenty more in the pipeline.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Dodging the bullet
At the height of the boom in Spacs – special purpose acquisition companies that raise millions in capital with the aim purely of buying other companies – in New York, there was plenty of criticism that London was missing out.
As so often in the past, the US market was innovating furiously, while the British one was getting left behind.
There was even a Brexit twist to the tale, as Amsterdam, London’s main rival in the equities industry now that we are out of the EU, managed to list more than 30 Spacs, while the City listed almost none. The LSE tweaked its rules to make it easier, but still no one seemed interested.
The UK might have dodged a bullet. It turns out that Spacs were not such a great idea after all.
Spacs boomed in New York in 2020 and 2021 with billions raised on little more than reputation and promises. In a single year, more than 1,000 shell companies were listed, raising a total of $160bn, with backed by a vague promise to buy something or other sometime one day soon.
The vast majority of them have proved very disappointing. Some of the most high-profile among them, such as the digital-media company BuzzFeed, have delivered terrible results.
An index of post-merger Spacs – that is, the ones that have found and acquired a target – fell by 23% in January alone, a much worse performance than the broader Nasdaq, which fell by just 9% over the same month.
A clutch of companies such as the clean-energy manufacturer Heliogen and the 3D printing start-up Matterport fell by more than 50% over the course of a single month. True, a handful, such as ChargePoint Holdings, have done well.
But the vast majority have floundered, and a worryingly large number have crashed.
A solution in search of a problem
In truth, Spacs are a waste of time and money. If a company wants to come to the market there is nothing wrong with the traditional route – come up with a clear and detailed plan, appoint advisers, issue a prospectus and sell shares. It was perfectly straightforward, and anyone who wanted to invest could make a decision based on the prospects of the business. Spacs were a poor solution to a non-existent problem.
It is hardly surprising that so many have crashed. By raising the capital first, and then trying to find a target, they put themselves in a position where they would inevitably end up wildly overpaying for anything they bought. The founders of most Spacs tried to claim that their contacts and expertise meant they could find fantastic deals that wouldn’t otherwise be available. There was not much evidence of that. In reality, the market is generally very efficient, and there are not many opportunities out there. Entrepreneurs know that they have plenty of options. They can go for a traditional initial public offering. They can sell to a venture-capital or private-equity firm, or they can persuade a bigger company to take them over. The only real reason for selling to a Spac was that it was offering a lot more cash than the business was really worth.
London was lucky to miss out on the Spac boom. Perhaps it was inertia, or laziness, or good fortune. More plausibly, perhaps, the world’s oldest and savviest financial centre simply sensed that it was a scam, and quite rightly stepped back from getting involved. Whatever the explanation, the City has had a lucky escape. And the last thing it should try and do is jump on the bandwagon a year too late.
-
The 30 house price hotspotsWhile we have seen house prices sliding, these sought-after locations have seen prices jump by at least 5% over the previous 12 months
-
Working parents will be entitled to 15 hours free childcare for two-year-olds from next year
The government has extended free childcare hours to working parents of two-year olds but it won’t be automatic so make sure you don’t miss out
-
M&S shares shift from frumpy to fabulous as pre-tax profits are up by 56%
M&S is performing strongly and has announced it will pay a dividend for the first time since the pandemic.
-
The rise and fall of Sam Bankman-Fried – the “boy wonder of crypto”
Why the fate of Sam Bankman-Fried reminds us to be wary of digital tokens and unregulated financial intermediaries.
-
Three defence stocks set to flourish in an era of instability
A professional investor tells MoneyWeek where he’d put his money. Tom Bailey highlights three defence stocks that look promising.
-
EasyJet shares are volatile but enticingly cheap
The EasyJet group has shrugged off the cost-of-living crisis, restarted dividends and shares look good value.
-
The fallout from the war on landlords
Investors fleeing the market and the rise in rents are affecting us all.
-
Eight small-cap trusts to bet on
Funds investing in market minnows are out of favour, but the cycle will turn. Here are the best bets.
-
Trust in US TIPS to beat inflation
In an inflationary market TIPS, the US Treasury Inflation-Protected Securities are most compelling says Cris Sholto Heaton.
-
What is Vix – the fear index?
What is Vix? We explain how the fear index could guide your investment decisions.
