On 1 March 2021 a new firm registered with the US Securities and Exchange Commission to list its shares. It is called Do It Again Corp. (yes, really) and has been formed “for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganisation or similar business combination with one or more businesses”. It is basically raising lots of cash to do – well, something – something you will find out about later.
If this reminds you of the (unverified) story of the company floated during the South Sea Bubble to carry out an undertaking “of great advantage but no one to know what it is”, you won’t be alone. There is much concern that a fully formed bubble in this kind of blank-cheque company, or SPAC (special purpose acquisition company), is under way in the US. They are, notes Jeremy Warner in The Daily Telegraph, “all the rage”. Last year $80bn was raised in the US (with around $3.4bn creamed off by investment bankers). This year we’ve already seen over 170 offerings, raising half that again.
It’s classic top-of-market stuff. No surprise then that it’s hard to find approving voices. Berkshire Hathaway’s Charlie Munger says the world would “be better off without” this kind of “crazy speculation”. Investing guru Jeremy Grantham has dismissed them as “thoroughly reprehensible” money-for-nothing schemes. They may both be right. If so, many people will be pleased that the UK’s listing rules just don’t work for SPACs – trading in their shares is suspended when they find something to buy, for example – so the boom has thus far bypassed us. But there is an important point to SPACs: they allow private firms to list quickly and easily (by merging with or being bought by the newly listed cash shell). The Financial Times reckons that’s a bad thing: “normal initial public offering (IPO) disclosure requirements... are in themselves designed to protect investors”. But it might actually be a very good thing.
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One maddening aspect of the last decade has been the fall-off in the listing of new growth firms in the UK – a trend you can map against the rise of regulation around IPOs and the endless administration that goes with being listed. And one of the maddening things about this month has been watching some of our brilliant firms (eg, Babylon Health) talk of going to the US via a SPAC instead of listing here.
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Lord Hill this week completed a government-commissioned review of UK listing rules and seems to be as frustrated as us. He recommends we “liberalise” the rules on SPACs; allow dual-class share structures (so founders can list but know they can keep some control); and cut the minimum free float (the percentage of shares that can be freely traded) from 25% to 15%. There are arguments against all these things, but the argument for them is better.
The public markets are vital to wealth creation. If we want all retail investors to have similar opportunities as professionals to buy into new, exciting growth companies (and we do), it is surely better to take the risks involved in making listing easier than those involved in the best firms not listing at all (or listing elsewhere). In his Budget this week the chancellor talked about making the UK the “best place in the world” for high-tech, innovative companies to operate and raise capital. Stockmarket reform will surely play a major part in that – to the long-term benefit of us all.
