(BFM Bourse) – Stars of the years in 2020 and 2021, so-called “blank check” companies are much less popular. SPAC liquidation announcements are beginning to appear, for lack of acquisitions corresponding to their criteria. It is therefore the hour of truth for these investment vehicles, two years after the euphoria that has won this market.
Even the leaders of the Parisian coast can break their teeth on a market reversal. Accor learned this the hard way. Two years after its creation, the SPAC Accor Acquisition Company supported by the French hotel giant will be dissolved for lack of finding targets corresponding to its criteria.
Launched in the spring of 2021, Accor’s “empty shell” had given itself two years to find its target to acquire, after having raised 300 million euros from investors including American banks JP Morgan and Goldman Sachs.
Accor had been seduced by this alternative route to the stock market, which has tempted a growing number of candidates, especially during the years 2020-2021. Behind this barbaric acronym that is the SPAC, 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.
In the case of Accor, the SPAC Accor Acquisition Company was intended to allow the hotel giant to gain momentum in its strategy of diversifying its activities with the acquisition of companies present in catering, well-being, flex-office (shared office), entertainment and events, and hotel-related technologies.
The SPAC had identified no less than 120 targets and had even engaged in “extensive discussions” with about twenty of them, reports a source quoted by The echoes. However, according to Accor, the task was more complicated than expected, given unfavorable market conditions, less marked interest in the SPAC model or the companies targeted were considered too immature for a IPO, adds this source to Les Echos.
“The shoe was too big”
“We did not find a shoe for us, in any case the shoe was too big or too expensive”, announced the CEO of Accor Sébastien Bazin, on May 17 before the shareholders of the group gathered in General Assembly.
Faced with this acknowledgment of failure, Accor Acquisition Company decided to put an end to the adventure and not to ask for a six-month extension. The funds will be returned to investors through the redemption of all the shares of SPAC, the disappearance of which is scheduled for June 30.
This announcement follows the announcement last April of the liquidation of Pegasus Europe, the largest SPAC in Europe, supported in particular by Bernard Arnault. The latter will be liquidated next July for lack, too, of having found companies to acquire before the deadline of May 3, 2023, as defined in the IPO prospectus of the company.
The weather is therefore turning stormy for the SPACs. “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,” explained Thomas Hornus, partner at EuroLand Corporate in early January. “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 2022,” recalls his Bloomberg side.
For another specialist, the market was flooded with projects too quickly, driven by an environment of negative interest rates, where there were far fewer interesting investments than today. “We rose to around thirty SPACs per week across the Atlantic in 2021. That year, 70% of IPO projects were SPACs, representing more than 150 billion euros in volume and more than 600 SPACs in United States in total over the year”, explains Pierre Troussel, co-head of equity capital markets France, Belgium and Luxembourg at Société Générale in an interview with La Tribune.
He adds that some sponsors have even “industrialized” the use of this instrument by creating five, six or seven companies at the same time when the phenomenon was in vogue. “So inevitably, today, it does not give confidence to invest in this kind of vehicle and even less to stay invested once the company has been bought out”, continues the specialist. And for lack of a sufficient number of quality targets for so many SPACs launched in such a short time, liquidations were therefore inevitable, causing market disaffection for these investment vehicles.
For the SPACs that emerged in 2021, the time for reckoning has now come. The clock is ticking and those who have not acted to get closer to another society will probably know a fatal design this year.
“Many deadlines are planned this year for SPACs listed in 2021, but given the ongoing volatility in the financial markets, acquisitions will be more difficult to carry out,” recalls Pitchbook, which has identified 791 companies listed on the stock market in 2021. through SPACs. But only 467 of them have made acquisitions since. What’s more, the majority of these acquisitions were made as early as 2021.
After the bursting of the bubble, the return to reason?
The forthcoming disappearances of Accor Acquisition Company and Pegasus Europe are not isolated cases, the liquidations of SPAC have indeed already increased in recent months. Nearly $30 billion from so-called “blank” companies has already been returned to investors since the start of the year, On The Money reports citing data compiled by SPACIsder. “Between the debt ceiling and the bank failures, it’s been a tough start to the year,” Kristi Marvin, founder and CEO of SPACIsder, told On The Money. “Everything has been paralyzed. It is really difficult to conclude a transaction today, whatever way you look at it”.
Is this wave of liquidations heralding the death of SPACs? No, tempers Pierre Troussel, who argues that it is simply a correction, and a “return to normal” of a market which could not absorb so many projects. For it to be sustainable, the specialist insists on a reasonable use of this instrument so that the SPACs “can target companies to buy that create value”, with a view to pulling their valuation “up after the conclusion of merger projects, and more broadly over time”.
An observation shared by Thomas Hornus. According to him, the SPAC market could become attractive again on condition of restoring investor confidence by “carrying out their IPO (IPO, editor’s note) on a valuation consistent with their project” but also by “identifying more upstream the potential targets to be acquired “. The final condition for restoring investor confidence is that these SPACs pay the targeted target(s) at the “fair price”.
Sabrina Sadgui – ©2023 BFM Bourse
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