SPACs: Is Europe Following the U.S. Trend?

Posted by: Paul Rose

Last year 68 special purpose acquisition vehicles (SPACs) were listed in the US.  Last week saw the listing of continental Europe's second SPAC ever, Liberty International.  The Financial Times reports that there are perhaps five or six SPACs in line to list on Euronext, perhaps making Liberty the start of a trend. 

SPACs in general have their problems, as Steve Davidoff has noted.  Further, SPAC offerings in Europe must overcome the fact that many of the cash shells listed on the UK's AIM market have performed poorly.  However, the Liberty International SPAC has a couple of points to its credit that may provide a model for easing European concern about the use of SPACs.  First, Liberty has sufficient proceeds--600 million euros--to make a play for larger companies without having to be leveraged by significant debt (as stated in the firm's press release, "The listing of Liberty International provides us with a highly versatile and efficient way of employing capital without relying on today's precarious debt markets").  Second, and perhaps more importantly, the management of Liberty is both relatively experience and successful, having used a US SPAC to bring GLG Partners, a hedge fund, to the NYSE last year.  The units in the US SPAC were sold at $10, and now are worth about $16.

While the SPAC looks to have a strong year in Europe and the U.S., the short history of SPACs is a reminder that it is often the intangibles provided by management, and not merely or even primarily the structure or governance policies of the investment vehicle, that determines the success of an enterprise.  The FT quotes a Citi banker (Citi was the lead underwriter on the Liberty listing) as saying: "SPACs and their potential returns are only as good as the management teams running them and their ability to source and acquire businesses at attractive values.  It is a young asset class and it is still too early to tell how many will achieve good returns."