London’s SPAC market ‘will take time’ to grow, top banker says

By Matei Rosca · November 19, 2021 10:23 AM

LONDON — The U.K.’s recent efforts to develop a market for Special Purpose Acquisition Companies will still bear fruit despite a sluggish start, according to a top banker who now heads a U.S.-listed SPAC.

A regulatory reform in August made it easier to list SPACs in the U.K. in the hopes of catching up to the red-hot New York market. SPACs, also known as “blank check” companies, are firms without real commercial operations set up with the narrow aim of raising capital through IPOs so they can take over or merge with another company.

Since August, however, there has yet to be a SPAC listing in the U.K. This suggests the reform is a good start but more needs to be done to make London competitive, according to Makram Azar, former head of Barclays investment bank in Europe. He’s now hunting for a European tech company that his SPAC could take public.

“The August reforms will certainly encourage SPAC sponsors to consider the City,” he said. “[But] they have come too late for London to reap the benefits of the massive SPAC wave that U.S. markets enjoyed and benefited from in 2020 and 2021.”

That’s a reference to the market craze earlier this year that drove billions into SPACs, especially in New York, where the niche is under close regulatory scrutiny.

“It will take time for London’s own SPAC ecosystem — comprising lawyers, analysts and other service providers — to build out an offering in the City that can rival what has already been created across the Atlantic,” Azar said. “This is a process that will take longer to realize than the related regulatory changes as the ecosystem needs to grow organically from the bottom up.”

“As this support network and pool of talent around SPACs establishes itself in London, we will see the market start to move and grow in the future,” he predicted.

Representatives of London’s main stock market are also optimistic.

“The regulatory changes made by the Financial Conduct Authority in August appear to have been well received,” said Charlie Walker, head of equity and fixed income primary markets at the London Stock Exchange. “It is possible we will see the first SPAC issuer under the new regime list by the end of this year.”

Along with New York, the U.K. is also eyeing Amsterdam as a rival. The Dutch capital overtook London as Europe’s top share trading hub in the first half of the year, to the chagrin of British policymakers, though London regained its supremacy in the interim.

More broadly, Brexit has eroded London’s traditional primacy as a trading center. Trading in carbon emissions permits and some derivatives, for example, is relocating as the EU has aggressively pursued a regulatory strategy of steering business to its own jurisdiction. This includes new rules requiring EU investment firms to trade on recognized platforms — a status that London markets failed to regain from the European Commission after Brexit.

Nonetheless, Azar still sees the U.K. as better placed in the medium term, pointing to record-high fintech investment in the country. A total of 283 fintech deals were struck in the first six months of 2021, worth some £18 billion, according to a KPMG study.

“Many of these companies will consider the U.K. SPAC route now that the path is open, but the key question is still if companies will opt for the U.S., rather than [look to] London or Amsterdam,” Azar said.

Regulators should focus on providing the “missing ingredients” that can help the U.K. market grow, namely a higher number of investors and more specialist research focusing on technology, media and telecommunications, he argued.

More broadly, the government’s work on simpler listings procedures — which is still to be concluded — as well as a renewed regulatory focus on competitiveness and growth are good news for investors, Azar added.

“The City also now has Westminster firmly behind it in the form of a Chancellor that is keen to ensure London retains its crown in a post-Brexit environment,” he said, with reference to Chancellor Rishi Sunak. “So there is reason to be optimistic about the U.K. in this regard.”

However, the current debate around giving regulators more powers and tasks, which used to sit with the European Commission, will also require bigger budgets for the supervisors, he noted.  

“U.K. regulators are already under pressure, and the Treasury itself has described the changes as a significant undertaking,” he said. “Adding an additional layer of objectives to the regulators beyond the primary function of protections and financial stability will require a significant deepening of talent, resources and manpower.”