Are Spacs just for suckers?
This year has seen a big boom in activity by special purpose acquisition companies (Spacs) in the US and the Spac craze is spreading to other markets. But some people have their doubts about them.
The special purpose acquisition company (Spac) boom is going global. Spacs are shell firms that list on the stockmarket in order to raise cash. They then use the money to buy an existing company. Spacs provide the acquired firm with a route to a stockmarket listing that is less bureaucratic than the traditional initial public offering (IPO).
This year has seen a big boom in Spac activity in the US. Now other exchanges want a slice of the action. Singapore has become the first big Asian exchange to allow Spacs. There have been just three IPOs in the city so far this year. Singapore hopes that the new rules will help attract big tech listings.
London is late to the Spac party
London is also jumping in. British rules requiring Spacs to suspend their listings after announcing acquisition plans had encouraged the vehicles to list elsewhere.
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
But last month the Financial Conduct Authority (FCA), the City regulator, revised its rulebook to make “the fusty stock exchange more hospitable to these whizzy” vehicles, says Jim Armitage in The Evening Standard. The City has watched glumly as British businesses rush to do Spacs in New York, while Amsterdam blossoms as Europe’s Spac hub. “Stories like that make a patriotic government nervous.” Spacs in Amsterdam have raised about $3bn this year, compared with London’s “minuscule $6m”, says The Economist. The FCA reforms are welcome, but they are unlikely to be a game-changer.
British rules governing sponsors – the people who initiate a Spac – are still stricter than those in Amsterdam. Spacs planning to buy European firms will still prefer to raise capital in euros rather than in sterling to avoid currency risk. In any case, the Spac boom looks to be “petering out”.
In America regulators are turning against Spacs, says Michelle Celarier in New York magazine. They are accused of delivering “huge windfalls to their sponsors and early hedge-fund investors while burning individual investors”. Companies have been known to slash bullish revenue forecasts after deals are signed. Spac stocks in America have fallen by more than a fifth since the peak of the frenzy in February.
At their best Spacs can give ordinary investors access to exciting startups that were previously unavailable to them, says Kate Kelly in The New York Times. Yet they increasingly attract a “malodorous whiff”. The founder of electric truck company Nikola, which listed via a Spac last year, “was recently charged with securities fraud”. As Tyler Gellasch of nonprofit Healthy Markets puts it, “The only reason why someone would do a Spac is because they found a sucker”.
-
Coventry Building Society bids £780m for Co-operative Bank - what could it mean for customers?
Coventry Building Society has put in an offer of £780 million to buy Co-operative Bank. When will the potential deal happen and what could it mean for customers?
By Vaishali Varu Published
-
Review: Three magnificent Beachcomber resorts in Mauritius
MoneyWeek Travel Ruth Emery explores the Indian Ocean island from Beachcomber resorts Shandrani, Trou aux Biches and Paradis
By Ruth Emery Published
-
The industry at the heart of global technology
The semiconductor industry powers key trends such as artificial intelligence, says Rupert Hargreaves
By Rupert Hargreaves Published
-
Three emerging Asian markets to invest in
Professional investor Chetan Sehgal of Templeton Emerging Markets Investment Trust tells us where he’d put his money
By Chetan Sehgal Published
-
What to consider before investing in small-cap indexes
Small-cap index trackers show why your choice of benchmark can make a large difference to long-term returns
By Cris Sholto Heaton Published
-
Why space investments are the way to go for investors
Space investments will change our world beyond recognition, UK investors should take note
By Merryn Somerset Webb Published
-
Time to tap into Africa’s mobile money boom
Favourable demographics have put Africa on the path to growth when it comes to mobile money and digital banking
By Rupert Hargreaves Published
-
M&S is back in fashion: but how long can this success last?
M&S has exceeded expectations in the past few years, but can it keep up the momentum?
By Rupert Hargreaves Published
-
The end of China’s boom
Like the US, China too got fat on fake money. Now, China's doom is not far away.
By Bill Bonner Published
-
Magic mushrooms — an investment boom or doom?
Investing in these promising medical developments might see you embark on the trip of a lifetime.
By Bruce Packard Published