JPMorgan becoming bank of choice for European SPACs

While many have been floated in the US since 2018, special purpose acquisition companies (SPACs) have only become a regular feature in Europe this year. JPMorgan has led more of these listings in Europe, the Middle East and Africa (EMEA) than any other bank.

A SPAC is a company with no existing operations that is floated solely for the purpose of making unspecified acquisitions. The expertise and reputations of its sponsors, or promoters, are integral to its success, and the funds it raises in its initial public offering (IPO) are then used to acquire one or more private companies.

The target company becomes listed through what is effectively a reverse takeover, a much quicker process than conducting its own IPO.

Alex Watkins, JPMorgan’s co-head of EMEA equity capital markets (ECM), observes that the SPAC concept — where investors give money to a specially created vehicle which then finds assets — has been around for a very long time.

“In Europe, however, such vehicles were historically very issuer-friendly and less investor-friendly, making them harder to sell,” Mr Watkins adds. “Typically, investors’ capital was completely committed and they had to trust in whatever the promoter decided.”

The vehicles that have evolved in the US are friendlier to investors, who get a vote on the acquisition and can choose to take their money back if they do not approve.

EU lags US

The US SPAC market exploded in 2019 and 2020. “Market conditions were very favourable and there was a lot of demand for the product,” Mr Watkins explains.

That led to oversupply, with inevitable negative consequences. “Many listed SPACs were competing to find targets within the specified period — usually 24 months,” says Silvia Viviano, JPMorgan’s head of EMEA ECM execution. “As a result, some bought very expensive targets.”

Earlier this year, the US Securities and Exchange Commission began taking a closer look at practices in what the media started calling “the blank-cheque acquisition frenzy”. “We’re a long way from that in Europe, where the SPAC market is still at an early stage,” Ms Viviano notes.

This year’s numbers bear that out. In the US, in the year to September, 394 SPACs raised around $120bn, according to the financial markets platform Dealogic. In EMEA, there were just 22 in the same period, raising some €5bn. JPMorgan priced seven of them — almost double the number led by the next bank (Goldman Sachs), it notes.

Some nine of Europe’s SPACs have been listed on Euronext Amsterdam, which has done a good job of wooing promoters. Others have been spread between Euronext Paris, Deutsche Börse, Borsa Italia and Nasdaq Stockholm.

London has missed out, at least until now. Because the UK regulator historically classified SPAC acquisitions as reverse takeovers, trading in any acquirer’s shares would be suspended and investors could find themselves locked in. Since the end of July, however, the suspension rule has been waived for SPACs raising more than £100m.

Following in the US’s footsteps

Europe’s first US-style SPAC IPO was Lakestar, incorporated in Luxembourg but listed in Frankfurt. With well-known tech investor Klaus Hommels as its sponsor, it raised €275m to be invested in one late-stage, IPO-ready tech company. JPMorgan was a joint global coordinator and joint bookrunner.

In April, the bank acted in similar capacity in the €500m IPO of Pegasus in Amsterdam — the exchange’s first US-style SPAC deal. One of Pegasus’s co-CEOs is former UniCredit chief, Jean Pierre Mustier, and the other is Diego De Giorgi, the one-time head of European ECM at Goldman Sachs and then global head of investment banking at Bank of America. Unsurprisingly, its eventual target will be associated with financial services.

Another draw for investors in Pegasus was one of its institutional sponsors, Financière Agache, the holding company for France’s Arnault family. Bernard Arnault is chairman and CEO of LVMH, the world’s biggest luxury goods company.

The following day, JPMorgan was sole global coordinator and sole bookrunner for the €200m IPO of OboTech Acquisition SE in Frankfurt. The leading light here is chairman and CEO Rolf Elgeti, property entrepreneur and venture capitalist investor. OboTech will invest in a European business in the so-called ‘proptech’ or ‘climatech’ sectors.

The team’s next SPAC priced in July. This was Odyssey, whose sponsor luminaries include Michael and Yoel Zaoui, the latter a former head of global mergers and acquisitions at Goldman Sachs. The vehicle was listed in Amsterdam, raising €300m to be invested in the European healthcare or technology, media and telecoms sectors.

Other Odyssey sponsors included former Natixis Investment Managers CEO Jean Raby, Sanofi ex-CEO Olivier Brandicourt and Michel Combes, president of SoftBank Group International and a former CEO of Altice, Sprint and Alcatel Lucent. Among the company’s independent non-executive directors are a former chairman of Morgan Stanley International, Walid Chammah, and Cynthia Tobiano, CEO-designate of Edmond de Rothschild Holding.

The JPMorgan team excelled just before the summer break, when it priced three SPAC transactions within the space of a week. One of these mid-July IPOs was I2PO, which listed on Euronext Paris. Thoroughly French in flavour, and therefore more attractive to French investors than other SPACs, its sponsors include France’s billionaire Pinault family and Centerview Partners banker Matthieu Pigasse.

Another sponsor is long-serving WarnerMedia executive Iris Knobloch (most recently head of WarnerMedia France), who will be the company’s chairman and CEO. The €275m it raised (upsized from €250m) will be invested in the digital entertainment and leisure sector. JPMorgan was joint global coordinator.

Simultaneously, the bank was sole global coordinator on the €175m IPO of Energy Transition Partners (ETP) in Amsterdam. One ETP founder is Tony Hayward, ex-chairman of commodities group Glencore and ex-CEO of BP. His co-founder is former Glencore executive Alex Beard. They will look for businesses that can lead or benefit from the transition of energy away from fossil fuels.

For both ETP and I2PO, the books were covered on day one, JPMorgan says, despite competition from two other European SPACs launching on the same day. “We try to focus on working with the best promoter groups,” Mr Watkins says, by way of explaining his team’s success. “We have chosen carefully.”

Only days later, the bank was joint global coordinator on the €225m flotation of VAM Investments, again in Amsterdam. Its chairman and controlling shareholder is Francesco Trapani, once Bulgari CEO and, later, LVMH chairman.

In Europe, at least so far, SPACs have yet to become a major part of the market and the investors form a selective group. There is a handful of big, important cornerstone investors and a long tail of another 50 or so, Mr Watkins reports. “We are beginning to see some interest from family offices and from other geographies,” he adds.

In the US, the SPAC market has cooled down considerably, falling from 30 listings per week at its peak to two or three. Sponsors have become more competitive to get transactions over the line. Some have shortened the deadline by which they must acquire from 24 to 18 months. Other are overfunding their escrow accounts to sweeten the deal for investors.

There is a pause in Europe too, but for a different reason. “Europe would really benefit from a successful ‘de-SPACing’ transaction,” Mr Watkins says. De-SPACing happens when the SPAC finally acquires a target or, in the jargon, effects a ‘business combination’.

Lakestar was due to hold an extraordinary general meeting in mid-September to vote on a business combination with German holiday rental search start-up HomeToGo. The market did not go wild on news of the deal and Lakestar shares remained, tellingly, below their offer price.

“The market reaction to announcements so far has been mixed,” Ms Viviano acknowledges. “All investors are waiting for a good de-SPACing.”

Mr Watkins concurs. “It’s quite binary at this point,” he says. “If there’s a successful de-SPACing or two, the market will push on. If the market is underwhelmed, it will take a step back.”