(News Bulletin 247) – Created almost 30 years ago, SPACs experienced a resurgence in popularity in 2020 and 2021. But now three years after the start of the euphoria on these so-called “blank check” companies, the time is now turning stormy… Pegasus Europe, the largest SPAC in Europe, supported in particular by Bernard Arnault, will be liquidated this summer.

It is an alternative route to the stock market that has tempted a growing number of candidates: the SPACs, or “Special-Purpose Acquisition Company” during the pandemic. The SPAC boom has allowed a wide cross-section of companies to enter the stock market directly without having to go through the cumbersome and complex process of a traditional initial public offering (IPO).

Behind this acronym, which may seem barbaric, hides a company without operational activity which raises funds on the stock market with the sole objective of making one or more acquisitions. An empty shell which is introduced upstream on the stock exchange on the basis of succinct documentation – no activity or results to present – by asking investors for a kind of blank check.

The only promise: to use the funds raised to acquire an unlisted company in return. Once the operation is completed, a SPAC is renamed with the name of the acquired company, which gets its hands on the funds raised, and that’s it. The post-pandemic stock market boom has given a second lease of life to these unique investment vehicles.

But once introduced, these companies have a very specific deadline to make acquisitions, otherwise the SPAC will be liquidated. Pegasus Europe, the SPAC supported by the French billionaire Bernard Arnault, the ex-CEO of the Italian bank Unicredit Jean-Pierre Mustier and Tikehau Capital, will meet this disastrous fate. The latter will be liquidated next July because it has not found companies to acquire before the deadline of May 3, 2023, as defined in the company’s IPO prospectus. Introduced in the spring of 2021 on the Amsterdam Stock Exchange, the “empty shell” of Pegasus Europe had given itself two years to find its target to acquire, after having raised 484 million euros.

A significant number of liquidations

“After a phenomenal success in 2021, particularly in the United States, where more than 160 billion dollars were raised, 2022 posted poor stock market performance and a significant number of liquidations due to a lack of acquisition projects validated on time, reducing investor interest in SPACs”, explained Thomas Hornus, partner at EuroLand Corporate in early January.

This state of affairs calls into question the very essence of the existence of a SPAC. These very special companies have a given time to decide on an acquisition opportunity, which must be approved by the shareholders’ meeting or the board of directors of SPAC. “If the project is refused, the sponsors continue their search within 24 months. If the operation is carried out within this period, SPAC becomes a listed company like any other. If the operation is not carried out, SPAC is liquidated” recalls Thomas Hornus.

Moreover, SPACs listed in France on the regulated Euronext market “are mainly aimed at qualified investors who have the necessary knowledge to assess the proposed arrangement” adds the specialist.

Source EuroLand Corporate

“Most publicly traded SPACs that traded have mostly disappeared, with the De-SPAC index, a basket of former publicly traded blank check companies, having fallen 67% in the last year,” recalls for his part Bloomberg. And according to data compiled by Barchart, more than a dozen companies resulting from a merger with a SPAC have lost at least 80% of their stock market value since their peaks.

For Thomas Hornus, the SPAC market could become attractive again on condition that it restores investor confidence by “carrying out their IPO (IPO, editor’s note) on a valuation consistent with their project” but also by “identifying potential targets further upstream. acquire”. The final condition for restoring investor confidence is that these SPACs pay the targeted target(s) at the “fair price”.