London Stock Exchange – My big Spac venture and a golden opportunity for listing rules reform

A bit late to the party admittedly, but I know a good thing when I see one, and have therefore determined to join the great Spac goldrush. My special purpose acquisition company – Spac for short – is to be called Warner Galactic Enterprises, and will target investments in space, fintech, climate change, vaccine and cannabis-related early-stage ventures.

I recently watched a trashy Netflix sci-fi movie in which – with the world about to come to an apocalyptic end, obviously – the profs attempt to adapt the human body so as to be able to live on Titan, one of Saturn’s moons, thereby giving humanity a second chance. This would fit the bill nicely, so if you know of anything along these lines, do get in touch.

Conceded, I do lack the celebrity profile of most Spac sponsors, but in other respects my company would scarcely be less credible than some of the nonsense that these days finds its way on to publicly listed markets.

Blank cheque companies

In the US, they are all the rage, having raised nearly $80bn (£57bn) in capital last year, and already more than half that in 173 initial public offerings so far this year. Seemingly everyone is getting in on the act, from Tidjane Thiam, the former Prudential and Credit Suisse boss, to Bernard Arnault, France’s richest man, and inevitably Virgin’s Richard Branson.

It’s easy to see why. Raise a bit of money from gullible investors, go out shopping with it, and provided you find something seemingly worth buying within two years, you typically get 20pc of the action gratis. Not for nothing are they known as “blank cheque” companies. At every stage in the process, the investment bankers make hay alongside the promoters.

Last year, they are estimated to have harvested $3.4bn in fees from Spac IPOs and private investment in public equity (Pipe) second-stage financing, prompting even David Solomon, head of Goldman Sachs, sheepishly to reflect on an embarrassment of riches and admit that the boom was probably unsustainable.

It’s all classic top of the bull market stuff, deeply resonant of one of the defining stock market flotations of the South Sea Bubble, which was for “carrying on an undertaking of great advantage but no one to know what it is”. No one ever did, for on raising the money, the sponsors promptly ran off to the Continent with it, never to be seen again.

A ‘golden opportunity’ for London

British-born value investor Jeremy Grantham has dismissed Spacs as “thoroughly reprehensible” get-rich-quick schemes, and called for them to be disallowed. That hasn’t stopped him from participating in a major green infrastructure Spac himself. I suppose that’s called hedging your bets.

In any case, it has left bankers here in London wondering how they get in on the act. So far, the very limited amount of Spac activity there has been in Europe has gone to Amsterdam, which has rather more accommodative listing rules than the UK.

There is also plainly a demand among European entrepreneurs, many of whom see such vehicles as a fast and relatively painless way of achieving a stock market listing. At least two British-based tech companies – the used car site Cazoo and the health app Babylon – are considering going public via a US Spac. Many more are being wooed by American sponsors, potentially robbing the UK of some of its most promising start-ups. There is a sense in which London is being left behind by old-world listing rules designed to minimise investor risk.

Last week, former London Stock Exchange boss Xavier Rolet called jointly with Matthew Elliott, chief executive of the Vote Leave campaign, for regulators urgently to address deficiencies in the requirements, insisting that there was a “golden opportunity” to grab some of the activity that has gone to New York and Amsterdam.

The appetite for permanently listed capital among ambitious UK and European innovators is no less than that of their American counterparts, they argue. “Ask the management teams at Spotify or Markit.” A considerable loosening of the rules was suggested in Ron Kalifa’s UK fintech review, published last week. A separate review of the listing rules by Jonathan Hill, a former European financial services commissioner, expected to be published shortly, will make further recommendations for reform.

Listings reform

But have we not already missed the boat? To my mind, Spacs are just another symptom of the bubble-like conditions US stock markets find themselves in, and therefore an accident waiting to happen.

Yet in other respects I have no particular problem with the phenomenon as such. If investors know the risks, and are perfectly aware, moreover, that they are having their pockets felt, why would you want to put barriers in their way? Let them do whatever takes their fancy.

There is in any case a perfectly respectable defence of blank cheque companies, namely that they allow entrepreneurs access to public markets without having to go through the often demanding, time-consuming and costly rigmarole of a direct IPO.

The only other alternative is private equity, but I know of few start-ups who can long put up with the degree of control and interference private equity involvement often entails.

Yet the real trick is surely less that of making it easier for Spacs to float in London as enabling the sort of early-stage companies they like investing in to access public markets directly. That means sweeping away many restrictions that prevent entrepreneurs from maintaining control of their businesses, and just as crucial, from making starry-eyed predictions about future potential. Again, investors don’t have to buy this stuff. Let caveat emptor rule.

Reason in the madness

In my view, US markets are already well into bubble territory. Nobody can say when they’ll go pop, only that they will eventually do so. Despite a raging pandemic in combination with a downturn of record severity, the S&P 500 has risen 22pc over the past 12 months and, astonishingly, the hi-tech Nasdaq index by nearly 50pc. If that’s not a bubble, then I’m a goddam Chinaman. Repeated rounds of fiscal and monetary stimulus have prompted a great, all-embracing speculation.

Yet there is always some reason in the madness, and in this case it is that Covid is turbocharging the transition from one economic age to another, with tech and biosciences the main beneficiaries.

Our own FTSE All Share index is by contrast slightly down both on the year to date and the 12 months as a whole. That’s no particular verdict on Brexit, or indeed the companies that make up the index. Rather it is a reflection of the almost total absence of new economy tech stocks of any significance.

Theoretically, that ought to make UK indices resilient to any US stock market crash, but it is also a crushing indictment of Britain’s failure to compete for listings among the growth companies of the future.

OK, so colonies on Titan – even credulous Spac investors might have a problem with that one.