23 Mar SPACs: the hot trend on the stock market may also be interesting for you
SPACs: the hot trend on the stock market may also be interesting for you
22 March, 2022
A special purpose acquisition company, or ‘SPAC’ for short, is a trend that has been taking the stock market by storm in recent years. First emerging on the scene in the United States, it has since spread over to Europe. In 2020, SPACs accounted for no less than 50% of the US IPO market! So what is a SPAC and how do the Dutch and European SPAC markets compare? In this blog, we’ll explain how this trend is also manifesting itself in the SME sector.
How does a SPAC work?
A SPAC is a company with a special structure and is an example of a so-called ‘blank check company’. SPACs have no commercial activities themselves but are set up specifically to raise capital through an IPO, with the aim of securing an acquisition or a merger. The first thing on a SPAC’s agenda is to seek out large capital providers before offering shares to the individual investor. Investors need to have a great deal of confidence in the company’s founders, seeing as those investor’s don’t know what the acquisition target is at the moment their money is invested. When a company has been found to take over, the SPAC receives (a portion of) the acquisition shares.
SPACs in the Netherlands
Although they have been around for some time, the interest in SPACs has grown significantly in recent years, also in Europe. It may sound a little strange, but Amsterdam is known as the SPAC capital of Europe. 16 of the 25 IPOs on the Amsterdam stock exchange in 2021 were undertaken special purpose acquisition companies. And the first listing on the Amsterdam stock exchange was for a SPAC. So what makes the Amsterdam stock market such an interesting environment for SPACs? The two main reasons are Amsterdam’s favourable regulations and the international character. It even looks like Amsterdam has taken over from the London stock exchange, perhaps partly due to Brexit.
SPACs and SMEs
We have been seeing this trend for some time in the SME sector, obviously in a slightly different form. A so-called ‘NewCo’ isn’t listed on the stock exchange but does have the same objective: establishing a temporary corporation with the purpose of taking over another company. This structure is used primarily by private equity, whereby the business that is selling also becomes a shareholder in the new company. This way, private equity benefits from the knowledge of the business owner and, in turn, the business owner has the opportunity to expand through the private equity deal. These types of acquisition are often financed through a bank loan and a subordinated loan that is provided by the selling party. The private equity party therefore only has to pay a relatively small part of the acquisition in cash, and the selling party receives a handsome return on the loan to the NewCo.
Do you want to let your company grow, retain your say and sell in the near future? Maybe this structure is the best way forward for your business! Our advice is to always seek expert assistance before taking the plunge. Don’t hesitate to contact our corporate finance advisers to explain your options. Together we’ll look at the best solution for your company.