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SPACs: limited cash shell opportunities for companies seeking to list


The menu of available SPACs in the UK is currently very small indeed, yet we anticipate there will be an uptick in activity in this sector as more companies turn to UK-listed cash shells as a means of getting onto the London market quickly.

SPACs are mostly used in the US, where they became increasingly popular during 2020, and we are seeing UK entities exploring this transatlantic opportunity as a viable option for their fundraising and expansion.

Why use a SPAC rather than IPO?

SPACS are favoured by companies for a number of reasons, among them more access to capital, experienced management teams on the existing company board, and most importantly, speed of completion. A traditional IPO in London at the moment can take around six months; a merger with a SPAC can be completed in a three to four month time frame.

“The driving factor in companies deciding to merge into a SPAC is, in the most part, access to funds,” explains Nick Whitehead, a senior manager at Zedra, a fund services firm. “With this becoming an appealing, popular and increasingly straight forward option, it might be that we see companies willing to forgo geographical convenience and relocate to somewhere new that works for them.”

SPACs are already being used regularly in the US now to bring privately held companies into the public market, many of them from sectors like technology and clean energy. These are companies which require the capital a listing can bring to help take them to the next level of expansion.

In London companies are facing a much narrower choice of SPACs, especially if you are wanting to take a company in the fast-moving clean energy market live. Among them are Pineapple Power (LSE:PNPL) and Mustang Energy (LSE:MUST).

According to law firm Norton Rose Fulbright, while over $2bn has been raised by UK listed SPACs since 2017, in recent years the UK SPAC market has been dominated by a small number of relatively large listings. The four largest SPAC listings represented 99.1% of total funds raised. And the market for available shells looks to be getting smaller.

Mustang took an indirect stake in Enerox, a vanadium flow battery manufacturer, last month. Mustang is a SPAC with a focus on energy storage and stationary battery assets. It invested approximately $7.5m into VRFB-H, which directly controls Enerox. This followed in the wake of a $5m investment into Enerox by Bushveld Energy . The drive here on Bushveld’s part was to use the capital to help to scale up growth at Enerox.

Pineapple Power: cash shell was listed in London in December

Another clean energy SPAC on the London market is Pineapple Power, which listed in December. Pineapple Power was also listed with the intention to make one or more acquisitions in the alternative energy space and remains one of the few available cash shell structures on the London market at the moment.

There is an obvious dearth of available cash shell structures at the moment in London, with appetite likely to accelerate if the US example is anything to go by. But right now it is still a lot harder to get a cash shell listed in the UK than it is in New York. That places a premium on those currently available.

“SPACs are particularly attractive to financial institutions looking to deploy capital in the current climate due to the combination of the lower interest rate environment and higher market valuations,” says Thomas Vita, a partner at Norton Rose Fulbright. “In distressed markets, SPACs are also well positioned to take advantage of favourable acquisition opportunities that may arise.”

Change may be afoot in London: Chancellor Rishi Sunak will be commissioning a review of UK stock market rules and regulations in a bid to enable high-growth tech companies and produce SPACs with better acquisition opportunities.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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