Martin Vander Weyer Martin Vander Weyer

Are Wall Street’s ‘Spacs’ about to make waves in the City?

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This column generally takes a sceptical view of financial novelties and gimmicks. So my antennae have twitched in recent days at frequent mentions of Spacs, or ‘Special Purpose Acquisition Companies’, which are the latest plaything of Wall Street and could be about to go large over here. Also known as a ‘blank cheque’ company, a Spac is a stockmarket-listed cash shell that raises money with a view to merging with a real — usually hi-tech, often relatively early-stage — business seeking a fast route to listed status. Hundreds of Spacs have been created in the US since the craze began last year, many with celebrity names — sports stars, astronauts, rappers — attached to win attention.

On the positive side, Spacs have drawn more than $70 billion so far this year towards investment in high-growth companies while offering retail investors the opportunity to back propositions that might previously have been reserved for professional venture capitalists. On the negative, Spacs have also been turned into a fee fountain for investment banks, hedge funds and ‘sponsors’ involved in launching them — and targets for short-sellers who see trouble ahead. Doubters say it’s all just another exploitation of the madness of crowds disguised by high talk about ‘democratisation of finance’ — and that, as so often, it’s the small investors who will get hurt.

So should we welcome Spacs in the City, where they’re currently deterred by the Financial Conduct Authority? I refer you to Lord Hill’s ‘UK Listing Review’, published last week and praised in the Chancellor’s Budget speech, which argues that Spacs look set to become popular for UK and European companies as alternatives to conventional IPOs, and that if London doesn’t offer them a home, Amsterdam will.

Hill’s thrust — with which I’m broadly in sympathy — is that to compete globally from outside the EU, London needs a more dynamic regulatory regime that’s capable of accommodating new evolutions of finance, with appropriate safeguards, whether we like them or not.

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