The SPAC boom is on everyone's lips – investors, regulators and the media. A SPAC (“special purpose acquisition company”) is a shell company created for the sole purpose of raising funds from investors in an IPO, with the aim of acquiring or merging with a private company within a two-year period.
The SPAC phenomenon was recently the subject of a joint Kekst CNC/Deutsche Bank webinar.
SPACs emerged as a trend in the US and dominated the market for IPOs in 2020. Last year, some 250 SPACs raked in more than US$83 billion in the US. The current year has proven even more torrid: To date, 2021 has surpassed those numbers.
Now, the trend has reached Europe. In the first months of 2021, four SPACs were completed. The Frankfurt Stock Exchange landed the listing for Lakestar SPAC I, a shell company with the goal of acquiring a European tech company. European SPACs are being launched at a rate that is rapidly picking up, and Deutsche Bank expects the unveiling of more than 10 SPACs before summer.
Despite the excitement, SPACs are seen as complex and controversial. Are they signs of a cash-flooded global economy and overheated financial market? Are they vehicles designed to dodge financial regulations? And are they appropriate for non-professional retail investors?
In fact, there are several compelling arguments in their favor, both for investors and acquisition targets. The success of SPACs is based on their flexibility and the fact that they potentially offer a win-win situation to everyone involved: attractive potential returns for sponsors and investors and an easier way to market for IPO-ready companies.
But while a SPAC can end up a success, it can also damage a company’s reputation – if the acquisition does not go well. Communications is a crucial part of the process, and reputational risks must be managed. That is particularly the case in a crowded SPAC and IPO market.
Successful SPAC communications doesn’t necessary mean heavy media coverage. What matters is being proactive and communicating in a consistent manner to all the key stakeholders. The aim is to enhance the public profile of the SPAC and its key protagonists, addressing investors as well as potential target companies while at the same time anticipating, mitigating and managing any potential reputational risks. This can be accomplished by maintaining a strong focus on management, its experience and its network – factors that are becoming increasingly important for investors. The quality of management and of the sponsors has to be at the center of any communications campaign.
Another important aspect is education: SPACs are poorly understood in Europe. Additional communication effort will be needed not only for explaining the underlying investment thesis of SPACs, but also for addressing skepticism towards them. Typically, a SPAC has just 24 months to complete the acquisition. Once the acquisition target is identified and the deal negotiated, the “de-SPAC” process begins, which consists of the merger between the private operating company and the publicly traded SPAC, with the shareholders of the private company receiving shares of the SPAC and/or cash as consideration. The process is all-important for maintaining a market for the security in Europe. Do the investors have all the information they need? What is the plan for de-SPACing? Is the target company ready to go public? The more transparent, the better.
Kekst CNC has deep experience advising across the M&A and IPO landscape. Our global team has advised on more transactions than any other firm. We are also a global market leader in SPAC communications, having advised dozens of SPACs and led the way on fashioning SPAC-specific communications, notably in the US. Some of our most recent engagements include the first European tech-focused SPAC, as well as a host of platforms focused on tech, mobility and ESG.
If you want to know more about our world-class SPAC communications capabilities, please contact:
For a replay of our recent webinar with Deutsche Bank on the phenomenon of SPAC, click here.