Spacs lack tech to back

Special purpose acquisition companies are losing their sense of purpose as they fail to link up with promising start-ups and market conditions turn against them.

Wall Street’s Spac mania has subsided and Owen Walker and Sarah White report Europe has not escaped the market’s hangover as the war in Ukraine rages, interest rates rise, regulatory scrutiny intensifies and investors grow warier.

Of the 66 Spacs that listed in Europe since the start of 2020, just 13 have found a company to merge with, according to Dealogic. Of those deals, eight have completed.

“You have to assume a lot of the money they have raised will be going back to investors,” said the head of M&A at a large European bank. “A lot of Spacs are suffering from investors losing interest — redemption rates are really high. That makes it even harder for them to do deals.”

Among those still looking is Pegasus Europe, the continent’s largest Spac. It raised €484mn when it listed in April 2021, but merger candidates have proved elusive due to the lofty valuations in its chosen fintech sector.

There is now some optimism among its sponsors that a deal can be struck as tech stocks fall and valuations decline. In one example, payments services provider SumUp last week raised funds at less than half the valuation suggested for the group earlier this year.

Bankers who worked on deals believe a smaller, more targeted Spac market will emerge in Europe, servicing companies who prefer it as a way of going public. “When it all shakes out, Spacs are here to stay as an instrument, an alternative structure to an IPO, but not in levels we were seeing last year,” said White & Case partner Jon Parry, who advised on many of the European launches.

In the UK, EO, a British provider of electric vehicle charging to companies such as Amazon and Tesco, is close this week to securing private funds to back its expansion into the EU and US after a failed attempt to float in the US through a Spac. EO was forced this year to ditch a $675mn deal to combine with First Reserve Sustainable Growth, a New York-listed special purpose acquisition company.

Meanwhile, Donald Trump’s plans to take his media business public have suffered a further blow after a federal grand jury issued subpoenas to a blank-cheque company that is set to merge with Trump Media and Technology Group.

Digital World Acquisition Corp said in a regulatory filing on Monday that a federal grand jury in New York had issued subpoenas demanding documents, including “communications with or about certain individuals”. The Securities and Exchange Commission is already investigating, seeking information on whether TMTG and Digital World had discussed a deal before the Spac went public, which is prohibited.

The Internet of (Five) Things

1. Plural’s P2P funding venture
Spacs may be going out of fashion, but John Thornhill reports on a new funding concept. Four European entrepreneurs have launched a €250mn fund to back tech start-ups across the region, seeking to disrupt the traditional VC model by creating a peer-to-peer investment platform. Called Plural, the new fund aims to invest in more than 25 start-ups over the next 18 months, taking early-stage stakes of between €1mn and €10mn.

2. Where Arm’s IPO money will go
Arm wants to use the proceeds raised from its upcoming initial public offering to look at pursuing deals and hiring more staff, setting out an ambitious course of expansion for the UK chip designer. Chief executive Rene Haas told the FT that Arm would seek to step up its push beyond mobile phones and go deeper into cars, data centres and hardware underpinning the metaverse.

3. Bain on pole for Toshiba take-private
US private equity firm KKR is stepping back from a potential $22bn bidding war for the future of Toshiba, people familiar with the talks said, leaving its main rival Bain Capital in pole position to pull off Japan’s biggest take-private deal. KKR’s decision came as Toshiba appeared to descend into further chaos following a historic annual shareholder meeting where representatives of two activist funds were voted on to the board after months of conflict between investors and management.

4. India’s trial by tweet
Indian journalist Mohammed Zubair appeared before a magistrate on Tuesday after being arrested over a Twitter post, a move criticised as an attack on freedom of expression by press and human rights’ groups. Zubair, co-founder of fact-checking website AltNews, was arrested by Delhi police on Monday over a tweet from 2018 that an anonymous Twitter user alleged was hurtful to religious sentiment.

5. A health warning for China’s health code apps
Health code apps are central to China’s Covid battle, but they are also being used as a tool of social control, report Ryan McMorrow and Cheng Leng. In one example, city officials in Zhengzhou changed the codes of more than a thousand people to red to prevent them from protesting against the potential loss of their savings in local rural banks.

Tech tools — Twitter Notes

Twitter is testing a new feature that will allow you to tweet and blog at the same time. Twitter Write is a rather basic composing tool that lets users create longer stories with images, called Notes, for their followers to engage with — all on Twitter. It’s only open to a select group of writers at present, but the feature promises to connect your Twitter followers with your extended thoughts, providing an instant audience, which a blog, or newsletter like this, would take time to build.