The European SPAC Ecosystem decoded
SPAC activity in Europe
Since the beginning of the year, 24 special purpose acquisition companies (SPACs) have gone public in Europe, raising a total of over €5.5 billion in fresh capital.
While this is still significantly less than in the U.S., where 428 SPACs had raised around €125 billion by mid-September 2021, it is still a significant increase on the nearly €400 million raised last year. Listed SPACs are now looking for private companies from a wide range of industries across Europe that are seeking a straightforward, faster and safer IPO route and need the financial firepower for the next phase of growth.
SPACs listed on the London stock exchanges hardly have comparable structures to SPACs on the other European stock exchanges. Especially in terms of size, promote structure as well as the handling of voting rights. Specifically, 12 SPACs went public in London in 2021, raising a total of €21.6 million. Therefore, we deliberately excluded UK SPACs from the statistics to ensure better comparability.
We are continuously monitoring the European SPAC ecosystem and have thus gained interesting insights regarding SPAC structure, stock exchanges as well as focus industries. In addition, 3 of the 24 SPACs have already disclosed the companies for the business combination, which allows us to take a closer look at the marketing documents and compare them to the much more aggressive US documents.
While European SPACs were structured from the beginning to be much more professional and investor-friendly than their U.S. counterparts, nonetheless their terms have also changed since the end of 2020, adapting to market sentiment.
For example, the average SPAC volume in Europe has decreased from an initial €260 million in Q1 2021 to just under €160 million in Q3 2021. In addition, the use of forward purchase agreements became more popular. In Q2, they were used in the DEE Tech and I2PO SPACs. The agreement provides greater transaction certainty for the business combination. The SPAC sponsors agree to inject a predetermined amount of capital at the time of the merger transaction closing, through the purchase of SPAC shares. Most recently, sponsor compensation has also evolved from the initial fixed 20% of SPAC volume to a performance-based structure tied to predefined share price targets.
SPAC Stock Exchanges
Amsterdam is ahead of the pack, with Euronext Amsterdam in undisputed first place in terms of the number of European SPAC IPOs.
This is due in particular to the flexible company law in the Netherlands. This allows to completely imitate the US structures and thus attracts more international investors. These investors are already familiar with the US structures and thus avoid potential additional effort and risk in the internal investment processes. In addition, lower language barriers and tax advantages make the financial center attractive.
The industry focus of European SPACs
Which industries are the searching European SPACs focusing on?
The two largest clusters in Europe are targeting companies in the financial services industry with a volume of around €1.1 billion and in the technology industry with €910 million.
SPAC Pegasus Europe alone raised nearly €500 million in April 2021. SPAC focuses on financial services companies active in investment management, insurance and diversified financial services. SPAC is led by two of Europe’s most experienced bankers, Jean Pierre Mustier and Diego De Giorgi. In terms of numbers, most of them focus on energy and the environment.
De-SPACing activity in Europe with focus on Lakestar and 468 Capital
Since the beginning of the year, 3 of the 24 SPACs in Europe have already announced their target companies and are now in the process of completing the business combination. Klaus Hommels’ Lakestar SPAC was the first to announce the potential merger with HomeToGo in mid-July and received shareholder approval in mid-September. The HomeToGo share has been tradable on the German Stock Exchange in Frankfurt since September 22.
In total, HomeToGo ends up with a company valuation of €861 million. Measured against the planned revenue for 2023, this corresponds to a revenue multiple of 4.4x. By comparison, direct competitor Airbnb lands at a valuation of 12.0x using the same valuation method. Other comparable companies such as Booking.com land at 5.1x and the e-commerce platform shopify even at 21.7x. In order to close potential purchase price financing gaps after the SPAC repayment deadline, Klaus Hommels has raised additional capital of €75 million through a PIPE. The deadline for Lakestar investors was 13.09.21. The redemption rate of the initial SPAC investors was only 37%, which is very low compared to historical redemption rates in the US. There, the median has been 73% to date. This speaks for the professional SPAC market in Europe and a long-term oriented investor base. The PIPE and SPAC proceeds give HomeToGo nearly €250 million more capital to use for organic and inorganic growth.
Barely 3 months after its listing at the end of April, 468 Capital, Alexander Kudlich’s SPAC, announced its planned merger with toy manufacturer Boxine (“Toniebox”). The transaction values Boxine at an enterprise value of €870 million, which corresponds to a revenue multiple of 2.5x when measured against projected 2023 sales. This valuation puts Boxine well below the metrics of its competitors. For example, Nintendo is at 4.2x, Disney at 3.8x and Netflix at 6.3x. Alexander Kudlich also raised a PIPE of €105 million to finance the transaction.
Comparison of the De-SPACing Process in the USA & Europe
The comparison between European and American investor presentations is interesting. For example, SPACs in the U.S., protected by a safe harbor exception, were allowed to publish specific business plans in their marketing materials and thus disclose plan figures to their investors up to several years in advance. This allows them to apply valuation multiples to revenue and EBITDA metrics that are far in the future. Specifically, for example, SPAC New Providence Acquisition marketed its target AST Space Mobile, a new space startup for space-based cellular broadband network, with a detailed business plan through fiscal year 2030. The valuation was assessed using expected EBITDA for fiscal 2024 of nearly $1 billion, which equates to a multiple of 1.4x. This is an ambitious valuation considering that first sales are planned for early 2023. (Source: New Providence Acquisition Investor Presentation)
In late May 2021, the U.S. House Committee on Financial Services released a bill to amend the Safe Harbor exception for business plans. In the bill, the committee calls for greater liability for management and sponsors if targeted growth goals are not met. This uncertainty regarding US SPAC regulation is currently clouding the outlook and has, among other things, led to a decrease in SPAC’s stock market listing in the US.
How do regulators in Europe behave towards the marketing of business plans in the de-SPACing process? In Europe, the safe harbor exception does not exist. European SPACs are only allowed to provide guidance regarding business development and thus target companies are not allowed to publish specific business plans. We expect that the European guidelines will result in mainly companies with a proven business model, obtaining shareholder approval for the business combination. For example, all three European SPAC target companies had a strong focus on historical business development in their investor presentation.
Outlook
Now the question is, how many suitable SPAC target companies are there in Europe that have the required size, suitable business model and solid historical financials? With currently over 30 looking European SPACs and over 60 looking US SPACs also focusing on the European hunting ground, this is certainly an important question for future sponsors and investors to ask themselves. Overall, therefore, we expect that future sponsors in Europe will want to wait and see how the first wave of SPACs in Europe develops for the time being, especially with regard to corporate mergers. In addition, demand from institutional investors for European SPACs is also leveling off for the time being, as they are already sufficiently invested. These two developments combined with the summer break has also contributed to the drying up of the European SPAC market over the past two months.
Even though the SPAC IPO wave is currently leveling off, the SPAC M&A market will pick up over the next few months, bringing with it exciting transactions. In 2022, we expect the rebound — the next iteration — “European SPACs 2.0.”
We stay tuned!
The SPACBook
The data for the article comes from our hy SPACBook database. The database includes all European-listed SPACs, as well as U.S.-listed SPACs focused on European targets, and covers all data points critical to analyzing the European SPAC ecosystem. In particular, it covers information on SPAC structure, sponsor and management analysis, and statistics on the current market environment.
Write us for early access to the SPACBook: contact@spacbook.co
Co-Authors:
Alexander Beck, Consultant @ hy - the Axel Springer Consulting Group
Henning Daut, Vice President @ hy - the Axel Springer Consulting Group
