The European SPACs boom and the Intralinks Deal Flow Predictor

• The European SPACs boom in context.
• Intralinks' Deal Flow Predictor applied to a live trend.

More of Intralinks' market intelligence, applied to a specific moment in the market.

Welcome to Dealcast, the weekly M&A podcast presented to you by Merger Market and SS&C Intralinks.

I'm Julianne Eadham.

In this episode, we're examining one of the biggest corporate trends of the last 12 months, the boom in special purpose acquisition companies or SPACs.

We're also finding out what the SS&C Intralinks deal flow predictor using data from the due diligence platform has revealed about the SPAC trend and other M&A trends globally.

Firstly, I spoke to Sophia Sikera, MergerMarkets ECM editor for EMEA.

Hi, Sophia.

Thanks for joining us today.

Can we start by looking at why SPACs have become so popular in the last year?

Yes, SPACs, they are not entirely new, but they've been going through a huge boom.

It's a combination of drivers, really.

We have on the investor side lots of drive powder to be deployed and very low yields elsewhere.

fewer and fewer companies on the stock market, so fewer opportunities there.

The IPO process as well in the US is seen as quite cumbersome and not particularly good at finding the right valuation for companies.

So there's a lot of money left on the table.

And there's also sort of sense of security for investors because the way a SPAC works means that they can always get their money back if they don't vote.

for the if they don't like the target that is being acquired.

And then on the other side, you have the issuers finding SPACs as effectively just another tool to raise and deploy capital efficiently and find companies to acquire.

And then for companies themselves to be acquired by SPACs is a much more effective way.

of becoming listed without going through that cumbersome IPO process so it's easier quicker and cheaper for them to have bilateral talks with a spike vehicle than to go through a traditional IPO process.

And it's been something we've seen a lot of in the US and it looks like it'll be moving across the Atlantic to Europe.

What evidence are you seeing of a SPAC boom in Europe and will the changes or potential changes to London's listing rules increase the chances for SPAC activity in London and the UK?

Yes, we are.

We've been monitoring the boom in the US closely and we're sort of expecting that in Europe as well.

We're definitely seeing signs of an uptick in activity here.

We've already have a few listed SPACs mainly in Amsterdam, but also there's been an announcement recently in the Nordics, also one in Paris.

And so we talk to advisors who are creating SPAC-dedicated teams.

We talk to private equity and corporates who are assessing, raising SPAC money.

So there's definitely a lot of movement there and we expect We heard for example up to 15 new vehicles listed by the end of the first half of the year.

So nothing like the US, but definitely growing numbers.

Now what happens in the UK compared to the rest of Europe, that's a really interesting point because because of the UK regulation, the existing regulation, it is more difficult.

That can be done definitely, but it is not as flexible as elsewhere.

Now Those listing rules are being reviewed and they expect to be changed and that might happen towards the end of this year.

after those regulations are simplified and for example- shareholders can vote on a SPAC target being acquired which is not an option now and shares are not suspended as they are now then we'll probably see more activity in London now the question that some people ask is whether they will be too late and whether.

London will have missed on the SPAC train because during this year we will likely see that activity going elsewhere namely to Amsterdam and that will.

possibly become the Stack Hub of Europe.

So that's an interesting one to follow and see sort of where the tide goes.

And what about cross-border activity?

We mentioned a few countries there.

What kind of cross-border activity are you seeing in the SPAC space?

So in terms of cross-border activity, it's been mostly about US stock vehicles increasingly looking at Europe when they are searching for targets.

There are more than 400 stock vehicles looking for targets in the US alone.

And so it's definitely a sellers market.

And there are lots of companies in Europe, especially companies that have already thought about potentially being listed or doing an IPO or attempted an IPO in the past.

And they are great stack targets and they are definitely talking to lots of US acquires.

So in terms of cross-border activity, that has been the main highlight across the pond.

Let's put it like that.

And what about the sectors that are seeing the most SPAC activity?

I've noticed that there are quite a few that are looking to target electric cars or companies linked to electric cars such as mining focused on battery metals and autonomous vehicles.

Yes.

Anything related to sustainability, to energy transition, green themes that is very high on the agenda.

pretty much everywhere traditional IPOs MNA but of course also on Spax there's a huge potential that now if we think of Spax into kind of companies that people are willing to put money in one of the key aspects is that often.

Investors are more willing to invest on something that has forecast growth and not yet you know.

Evidence of profits or you know a sort of very strong track record and so for those companies and that is particular spaces where it's more about the potential growth rather than you know the profit that is already there that's a perfect fit for a spark so we have a lot on anything related to.

You know a taxi companies and.

batteries, electric vehicles, those are definitely themes.

Anything with an ESG stamp is definitely something that we're seeing a lot on SPACs.

There is, for example, one in 2MX Organic in Paris.

They are looking to acquire a company or targets in the organic consumer space.

So there's also that ESG element there and ESG core investments in Amsterdam, also looking for a sustainability related target, for example.

And do you think they could become a smack become one of the main routes to market for companies looking for a quicker and less onerous way to being listed.

Well the jury is out whether it will be the main route but they will definitely be another route that wasn't front of was there but wasn't front of mine and now it definitely is when we talk to advisors looking at these processes they're saying that whether before.

Before they were looking at the dual track potentially selling to private equity or private trade buyer and looking at a listing at the same time now they're often looking at a triple track so the SPAC route is there from the beginning and is a very feasible and very pretty serious option that is there effectively almost any company that is in a minute target and that could be considering an IPO would be a SPAC target so that is definitely there and.

that will be the case for some time given the amount of vehicles looking to acquire.

So what's the appetite from European fund managers to invest in SPACs?

I think some London-based fund managers might remember that it wasn't that long ago that the Indonesian mining company Bumi, which started out life as a cash shell or a SPAC by Nat Ross Child and delisted a few years later as a fraction of its original value with lots of controversy relating to corporate governance and ownership.

Do you think that's going to put some people off investing some fund managers off?

So one thing I'll say, I think European fund managers are definitely interested and they're very much looking to jump on board and see, you know, what are the opportunities there.

Now, in Europe in particular and in London specifically.

I think definitely people will have that in their memories and will be particularly cautious about that.

That relates to the sectors they are looking at.

So they will be quite careful about the sectors they are looking at.

But there's also the fact that just because it's a stack, it doesn't mean it doesn't have any corporate governance requirements or it doesn't mean there isn't any investor education there.

It's not the same as the traditional IPO process, but there's definitely a chance to look into the companies being acquired.

especially if there is a vote on those companies being acquired, then investors will get a say on that.

It will depend on the sectors that are being looked at.

Again, if we have that is growing ESG element and sustainability linked element, I think that might be something that investors can overcome.

There will definitely have a, I don't think it will put them entirely off, but there will probably be more cautious on that front.

Great.

Thanks, Xavier.

Thank you.

That was Sophia Sekira, Merger Market's ECM editor for EMEA.

SS&C Intralink's latest deal flow predictor, based on data from the company's due diligence platform, highlighted a number of other trends in M&A.

I spoke to Ken Bisconti and Bob Petrochi, co-heads of SS&C Intralinks, to find out more.

So let's start by looking at an overview of M&A activity globally.

What did you see in the last quarter of 2020 and what are you expecting to see in the early part of 2021?

Bob, perhaps you can start with that one.

Yeah, through a turbulent year.

I mean, obviously Q2 was a very challenging quarter for the market, but through all the challenges, the M&A market ended up at a high.

We think leading into 21, it's a great time of opportunity.

So there's a lot of confidence in the market from Q4 that definitely bled over and we're seeing a pretty significant uptick in Q1 deal volume.

So there's no question about that.

A deal flow predictor is pointing to better than a 10% growth in the M&A market for announced deals in Q2.

So it looks like the momentum is going to continue.

A lot of confidence, a lot of resilience in the market.

I cannot know what your thoughts are.

I just echo that.

I think we all saw that there were a lot of either deal hold-offs or deals dying in Q2 of last year.

But we were probably all positively surprised by the resilience of the market that came roaring back in the late summer and has continued even into the early part of 2021 so far.

So it's been very positive.

Looking at the different regions, can you talk us through what's been happening in the APAC region and which sectors saw the most activity there, Bob?

Sure, I think along with North America, APAC is definitely leading in global growth.

What we're hearing from sources like EY and the conference board that the tighter controls they had around COVID and kind of containing the transmission, it definitely increased to, it led to increased customer confidence and just more deal making.

So on top of the increase, traditional deal making.

They've also seen a boom in the IPO market.

So in China's leading the way there.

So just a lot of activity overall in Asia-Pac for sure.

And turning to you, Ken and the EMEA region, what activity and trends are you seeing there?

Well, in EMEA, despite the sheer number of lockdowns across EMEA and made more complicated by the number of countries with varying approaches and issues.

The region's been trending relatively flat from 2019 to 2020 and into going forward.

Now, late to the IPO boom, you know, and me is actually, you know, signaling it's not going to sit out the year.

There have been already impressive listings in 2021, including Dr.

Martins and Deliverco.

We see upcoming legislative changes in the UK, such as the introduction of dual class structures, making London even more attractive for new issuance.

Now, based on the deal flow predictor, EMEA IPOs came in pretty strong in Q4, actually nearly quadrupling the number of IPOs we saw getting started in Q4 the year before.

Our Q2 2021 M&A prediction for EMEA lands roughly between minus 5% and plus 5% growth.

Now that's compared to what was predicted in Q2 of 2020.

And of course we know that the number of Q2 deals in 2020 were unexpectedly halted.

So we're actually anticipating the actual numbers to hit at the higher end of that spectrum, even though it's a minus five to plus 5%.

We fully expect it'll be at the higher end of that spectrum.

as COVID begins to wear off some of the deal-making hesitance.

And on the bankruptcy front, we have not been seeing the influx of distress deals coming to market expected, likely in that region due to moratoriums that were imposed in the region.

Yeah, and it was certainly something there was a ban on redundancies in Italy that I'm aware of and I think in other countries as well.

And looking at North America, we saw a lot of early stage deal activity.

What are the big trends of you seen in the North American region, Bob?

Well, I think Ken touched on it a bit.

We have the adverse in North America than you do in a me and APAC because there is no regulations or protections against insolvency.

So we've seen a big steady flow into the US markets with both bankruptcies and install in the insolvency so our you know that trend continues for sure.

We've seen it through most of the second half of 20 and into the first quarter of 21.

In a similar range between negative five and plus 5% growth in that space in North America.

So that's definitely gonna play a part in probably Q2 from what we're seeing in the DFP.

Growth should be about 10% with distress volume.

So it's it's significant You know we touched upon IPOs.

It's certainly a hot market and I know you guys have been talking a lot about SPACs, but that's that's driving it We're also seeing de-SPAC activity in the market, which is is interesting, but you know, there's 360 IPOs this year compared to 480 for the entirety of 2020 so so definitely some some increased volume there And just looking at that SPAC boom in a bit more detail is something that we heard from Sophia about earlier.

From your perspective Bob, what has driven this massive increase in the number of SPACs over the last year?

It's just simply too much cash in the market right now.

It's a seller's market.

Valuations are super high and SPACs are relatively easy to form.

You can get it done quickly, you can raise cash and you can close on deal faster.

So they're very agile.

equity capital markets are booming across the globe.

So there's a lot of private equity companies that want IPOs, but IPOs immediately without growing through a window.

So there's plenty of cash sitting around in private companies with favorable valuations and looking to exit quickly.

So it's a perfect marriage right now.

Looking at Latin America, we also saw a high level of early stage deal activity there.

Can you tell us more about that and other trends in the region there, Ken?

Yeah, happy to.

I think, first of all, it's important to remember that as a whole, Latam is the most susceptible region that we've seen to geopolitical and economic swings.

But that said, they've been able to minimize the impact of COVID, at least on M&A and capital markets.

When we look year on year to our Q2 predictions for M&A, the region's actually in a positive range with a 5% to 10% upside.

And surprisingly, we're seeing even greater than 10% growth in both M&A and IPO volume in Brazil.

And that's despite COVID recovery challenges, these numbers are pretty remarkable, which makes us ask almost, how is this happening?

And I know there's a lot of market speculation on that.

There was Reuters, article recently that really the impetus that's been driving capital markets in Brazil is just as in many other areas the investor need for growth outside of fixed income returns.

And so positive surprise in LATAM and expected to be quite strong year on year.

It's interesting.

We have a strong business in LATAM.

We've been operating there for over the last 10 years.

One thing that's constant is that geopolitical unrest is always the flavor down there.

So I think the region has become resilient and they're used to operating in such.

Not a new topic for them.

Not at all.

They know how to operate.

Looking at some of the sector trends, technology obviously had a great year last year with the pandemic, with trends such as home working and online shopping.

But some of the big tech stocks have seen exponential growth in recent years.

However, there are some clouds on the horizon for a lot of those businesses with global regulators looking at how to better restrict their market power.

How are these antitrust probes in the US, China and Europe likely to impact M&A in the tech sector?

Well, Juliana, it's a great topic.

There's been a lot of interest in this.

And as a result of that interest, there's actually a specific spotlight in the DFP report on this topic.

Irregulatory decisions and antitrust probes are likely to have an impact, as you mentioned, on the sector.

And, you know, in fact, recently we held an M&A virtual summit at Intralinks where, you know, there are a number of experts and legal experts in this area discussing that topic.

The general consensus was that we shouldn't expect seismic change at least immediately.

But there are a number of people obviously watching recent nominations to the FTC and NEC of advocates that are advocating decentralization of big tech, as well as the recently proposed clubiture bill.

And that can shift antitrust laws in a way favoring potentially more activity and maybe even break up activity in that sector.

So more to be said there, but at least from the DFP, we see that early stage M&As continuing to outpace volume from last year.

And deal makers aren't showing any sign of retreat from approving new deals from FANG and others in big tech.

Great.

Thank you both very much.

Great.

Thank you.

That was Ken Bisconti and Bob Petrochi, co-heads of SS&C Intro Links.

I'm Julianne Annesham.

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