Britain’s star-spangled Spac disaster

One thing to start: Leon Black, the billionaire financier, has failed in his effort to persuade a judge that one of his top business rivals conspired with a Russian fashion model to publicise made-up allegations of sexual abuse that prompted his departure as chief executive of Apollo Global Management.

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UK companies get crushed by the Spac bust

When electric vehicle company Arrival sped towards a blank-cheque listing last year, Britain’s dealmakers and politicians were disappointed that the company’s fleet of sustainable bus prototypes wouldn’t be making a stop at the London Stock Exchange.

It was the latest promising UK tech company lured by the Spac boom to leave home for emerging blank cheque hubs, namely New York and Amsterdam.

A number of other UK companies soon followed, including used-car seller Cazoo and healthcare tech start-up Babylon. UK tech companies’ flight to US exchanges sent British policymakers scrambling to update the country’s tightly governed listings regime in an effort to entice the start-ups to list domestically.

But now a broader tech sell-off has crushed the valuations of companies that went public via Spac deals, causing UK companies that listed in the US over the past two years to lose 61 per cent of their value on average, the FT’s Nikou Asgari reports.

Many are nursing steep falls. Arrival has suffered most, losing 93 per cent of its value since completing its Spac deal in March last year, according to Dealogic data, leaving it trading at less than $2. That’s a far cry from November 2020, when shares in Arrival’s Spac, CIIG Merger Corporation, jumped to more than $13 when the merger was first announced.

Cazoo has also felt the brunt of the sell-off, with its shares plunging 91 per cent since the start-up listed in August. Quantum encryption company Arqit and car data analysis business Wejo were also among the ventures whose New York listings stoked UK policymakers’ fears of a tech exodus, and are now confronting steep share price falls.

The plummeting valuations of UK companies that merged with Spacs are just one result of worsening sentiment towards the financial vehicles.

Rising interest rates and recession fears have prompted investors to dump the sort of early-stage, cash-burning start-ups that epitomised the Spac frenzy but have failed to live up to their ambitious projections.

Even the banks, who are poised to rake in lucrative fees no matter how hard a Spac flops, have taken a step back from the market, as DD reported earlier this month.

As one Spac adviser summed up the scene: “It’s going to be a bloodbath for the founders . . . the lion’s share of Spacs looking for deals are going to unwind so if someone came to me and said I want to raise a Spac now, I’d say you’re out of your mind.”

Lina Khan and Jay Powell solve banker burnout

It’s setting up to be a relatively pleasant summer for M&A bankers.

Despite working through a pipeline of megadeals from a decade-long acquisition binge, a cooling of the market should offer time to soak up The Hamptons or Ibiza sea breeze without fear of losing deals.

On the surface, bankers’ books of business still look strong. The amount of deals struck in the first half of 2022 hit $2tn, led by megadeals and buoyant private equity takeover activity.

Twenty-five deals worth more than $10bn were announced in the first half of 2022, according to data from Refinitiv, up 12 per cent from last year — although overall deal volume fell by a fifth, DD’s Kaye Wiggins, Ortenca Aliaj and Antoine Gara report.

Private equity groups saw deals rise by 2 per cent and accounted for a record 26 per cent of total M&A this year.

It’s enough to shelter M&A businesses from plunging revenues. Advisory fees have fallen just 7 per cent this year. The axe will probably fall first on banks’ equity business, where fees are off 72 per cent.

Increasing regulatory hostility to big deals, the war in Ukraine and rising interest rates has led to the slowdown.

“The administration set out to cool things off in the M&A market and it is having some effect,” said Eric Swedenburg, co-head of M&A at Simpson Thacher & Bartlett.

Furthermore, US equity markets are off to their worst start since the 1970s, causing a disconnect in expectations between buyers and sellers. “We’re in a transition phase where sellers have high expectations of value, but buyers have repriced to lower multiples,” said David Higgins, a partner at Kirkland & Ellis.

Dealmakers satiated by a record $5.8tn in acquisitions last year are copacetic. “2022 was never going to be like 2021. It was a record year in every way,” said Stephen Arcano, global head of transactions at Skadden.

But a prolonged slowdown may be in store, meaning the workload could increase after Labor Day.

Bank financing has evaporated and the private lenders that propped up buyout activity are low on cash.

“Demand for direct lending capital will meaningfully exceed the available supply,” said Marc Lipschultz, co-founder of Blue Owl. Loans are sitting on lenders’ books longer, limiting their ability to finance new takeovers.

“The capital that’s normally refreshing the system just won’t be there,” he added.

Unilever freezes Ben & Jerry’s out of the ice cream debate

Things have been getting frostier between Ben & Jerry’s and its parent company Unilever.

On Thursday, the ice cream maker declined to sugarcoat its response to a move by Unilever to sell its Ben & Jerry’s business in Israel to a local licensee Avi Zinger, circumventing a boycott by the brand from selling its products in the West Bank and East Jerusalem.

“While our parent company has taken this decision, we do not agree with it . . . We continue to believe it is inconsistent with Ben & Jerry’s values for our ice cream to be sold in the occupied Palestinian territory,” said the ice cream brand, which retains an independent board designed to promote its “social mission” despite being acquired by Unilever in 2000.

The deal puts an end to a year-long spat that placed Unilever in the crosshairs of the Israeli government (including a threat of “severe consequences” against the company from outgoing prime minister Naftali Bennett), US politicians, and activist investor Nelson Peltz, who owns 1.5 per cent of the UK consumer goods group and is joining the board next month.

Job moves

• Xerox has named Steve Bandrowczak as interim chief executive due to the death of the company’s CEO and chair John Visentin, who had suffered complications from an ongoing illness.

• Bulb boss Hayden Wood is leaving the collapsed British energy supplier at the end of July, as the UK government hopes to seal a sale of the group which was bailed out by taxpayers.

• Former BlackRock managing director Doug McNeely is joining The Carlyle Group as a partner, per Bloomberg.

• Goodwin has hired Kirkland & Ellis private equity lawyer Daniel Dusek as a partner in Hong Kong.

• Law firm Willkie Farr & Gallagher has hired Daniel Gendron as a partner in the firm’s London office. He joins from Linklaters.

Smart reads

Tough pill to swallow McKinsey’s role in the opioid crisis didn’t stop at its work for Purdue Pharma, according to a New York Times investigation, which detailed its work for a client that made pain pills even more powerful than Purdue’s infamous OxyContin.

Risky business Celsius wooed a wave of customers and venture capitalists on the guise that it was less risky than traditional banks. The opposite is true, according to a Wall Street Journal investigation, as investors fear collateral contagion in the crypto sphere reminiscent of the 2008 housing bubble.

Rocky history Mondelez’s $2.9bn takeover of Clif Bar has left a bad taste in the mouths of employees following widespread lay-offs and promises from management that the business would remain family-owned, Forbes reports.

News round-up

DE Shaw ordered to pay record $52mn to former star money manager (FT)

Saudi Arabia in talks to take stake in Aston Martin (FT)

Singapore regulator censures embattled crypto fund Three Arrows (FT)

UK ministers tap Barclays to secure investment for new nuclear plant (FT)

Gazprom shares plunge 25% after dividend blocked (FT)

Hedge funds scoop up biotech stocks after ‘catastrophic’ declines (FT)

Barcelona sells media rights stake to Sixth Street in bid to repair finances (FT)