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SPACs exploring beyond US in search of deals

SPACs are looking beyond the US to find less-saturated markets, including towards Japan, Europe and Latin America.

But with criticism around the big name celebrities pushing projects, and regulators paying more attention to the risks for retail investors, will the hype behind these blank-cheque juggernauts sustain them as they push into new markets?


The rise of the special purpose acquisition company over the last 18 months has been spectacular, with investors pouring millions into launching shell companies.

It’s arguable the SPAC explosion began with Virgin Galactic, which announced a US$720 million deal in October 2019 that allowed the space tourism company to go public, without itself launching an IPO.

That sparked a stream of high profile mergers, including fantasy sports and betting operator DraftKings, which closed a $3.3 billion reverse merger with a SPAC and another technology company in 2020.

Both DraftKings and Virgin Galactic’s SPAC mergers made money for early shareholders and the companies, and the wave of mergers started to gather momentum.

In 2020, there were 248 SPAC listings and a record-breaking US$83.3 billion invested, but even that was dwarfed in the first three months of 2021 alone – another 298 new ones had appeared, more than five times that for the whole of 2019 (59).

By the start of August that total had risen to 395, with US$118.1 billion raised. It’s remarkable to think that as recently as 2016, there were just 13 SPACs launched.

There is US$205 billion raised from IPOs that is ready to be put to work in acquisitions.

With all these funds in the can, investors are now playing a waiting game as these shell companies ponder the question, what can be bought? 

Of the 248 SPAC listings in 2020, 105 are still searching for a target. Time is ticking particularly for SPACs launched in early 2020, because there is generally a two-year window to complete a deal. If no deal emerges, then funds are refunded to investors.

But the local well is drying up and SPACs are looking beyond the US to find less-saturated markets, including towards Japan, Europe and Latin America.

With criticism around the big name celebrities pushing projects, and regulators paying more attention to the risks for retail investors, will the hype behind these blank-cheque juggernauts sustain them as they push into new markets?

Why the sudden popularity?

While the retail investment world seems to have recently discovered them, SPACs are not new – these ‘blank cheque’ companies have existed for decades.

Apart from high-profile deals putting the investment vehicle in the spotlight, there are a variety of benefits that SPACs present to private companies:

  • Ability to go public via a faster and easier process than a traditional IPO.
  • Access to public markets and the significant capital that often accompanies it.
  • Opportunity to partner with experienced sponsors who offer leadership, expertise and financial support
  • Increased flexibility thanks to SPAC sponsors acting as partners, rather than displacing the company’s existing management

Allen Goh, Partner at Baker Tilly in California, says it may simply be that investors are sitting on a large amount of capital and SPACs have come along at just the right time.

“The blank cheque company is not a new concept but it’s just that few people have used until the last couple of years when it has exploded in popularity,” he says.

“Part of it is that investors just have a lot of extra money at present and they are trying to deploy their capital in any ways available.”
– Allen Goh

“Part of it is that investors just have a lot of extra money at present and they are trying to deploy their capital in any ways available.

“There was some initial momentum from bigger deals such as DraftKings and since then, all these big names and celebrities had a SPAC, and they raised a tonne of money.”

Retail investors don’t generally have access to big IPOs in the US and shell companies are making investment more accessible for the mainstream. 

“There’s no way Goldman Sachs would give Allen Goh an allocation of shares in this red-hot IPO, it’s just not going to happen,” he says.

“A lot of these higher-end IPOs, retail investors are completely shut out from an initial allocation. Yes, you can buy it on the secondary market, but there’s less retail involvement in the initial stages.”

The issue with SPACs progressing deals is the highly competitive M&A domestic market in North America. But mergers and deals is the only way forward or SPACS will need to refund the capital to investors, which is forcing these shell companies to look further afield.

“The biggest pressing issue right now is they can’t find enough targets because the M&A market is really tight and it’s super competitive,” he says.

“It doesn’t really matter whether the companies are domiciled here in the US or elsewhere, so there is opportunity for international companies to become eligible targets.

“We have a team working on Japanese companies that are trying to go public through the US SPAC market, and we are seeing a lot of that with Japan because we’re looking specifically in Japan.

“But other areas, the UK, Australia, absolutely. If there are targets there, there is no reason why investors would not look to other regions.”

To SPAC or IPO, that is the question

SPAC listings are not limited to any one industry, but they are increasingly common within the sectors of software and technology, life sciences and real estate.

Mr Goh says there are many benefits to listing via a SPAC but one of the most important is the interaction with the investor base, which may be crucial to your business especially if it’s in a niche or emerging market.

“The inside information that I’ve heard from SPAC investment bankers is if you’re a normal company where everyone knows what you do, an IPO is probably for you,” he says.

“Take Google, everyone understands what Google does, it’s pretty straight up what their business model is and how they generate revenue. They don’t need to spend a whole lot of time with their investors to educate them and help them understand how they do business.

“But if you’re an emerging business…or you’re trying to do something new, something people haven’t yet got their head around, maybe that might be a better opportunity for a SPAC because you can precede the market.”
– Allen Goh

“But if you’re an emerging business, an emerging vertical and people don’t really understand your business model yet, or you’re trying to do something new, something people haven’t yet got their head around, maybe that might be a better opportunity for a SPAC because you can precede the market.”

WM Technology is a company best known for its Weed Maps application that plots locations of cannabis dispensaries, and its Software-as-a-Service (SaaS) offerings for cannabis-related businesses.

Mr Goh has worked closely with the firm for several years and in July, the company went public after it merged with a SPAC, Silver Spike Acquisition Corp.

It is a challenging space because, despite the loosening of cannabis laws in many US states, federally cannabis remains illegal.

Speaking on a Baker Tilly Webinar recently, WM Technology chief financial officer Arden Lee said his company’s decision to use a SPAC was two-fold.

“The process itself allowed us to spend a lot of time with future shareholders, which is critical for a business like ours,” he said.

“The process also provided a lot of certainty in terms of getting a deal done, in a way that’s lacking in an IPO.

“The challenge with a business like ours is finding investors who appreciate our business model but also, who can also invest.”

Mr Goh says one of the benefits of a SPAC is getting more interaction with the investor base and WM Technology, is a classic example.

“It’s the companies that do something a little bit different, or operate in a different field, those are the ones where a SPAC seems to suit them best,” he says.

“It’s harder for them to try to articulate and get their investors attuned to what they’re doing so that intimacy with investors could pay dividends.”

Risk areas for investors and companies

Baker Tilly’s experts have warned that some companies are underestimating their IPO readiness and risk being swept up in the excitement over SPACs.

Without the right advice, companies end up public before they are prepared, and the right advice is crucial, especially when the ability to go public relatively quickly can be attractive.

For investors, the charges laid by the SEC in July against the SPAC Stable Road Acquisition Company, its proposed merger target Momentus and key people surrounding both firms highlights that SPAC investment is not without significant risk.  

Regulators are now paying closer attention to the pitfalls and SEC Chairman Gary Gensler said that the agency is devoting significant resources to addressing emerging issues.

The SEC is also making it harder for SPACs to reward early investors with shares in a company after an acquisition, and preventing management from making statements about future profitability.

Mr Goh says when the SEC issued new guidance for the treatment of SPAC warrants, it forced many firms to make restatements that slowed the market down for several weeks.

“The SEC guidance was kind of the biggest speed bump but at the end of the day was a just speed bump, I don’t think it stopped any deals from getting done,” he says.

While the heat has come out of the listings frenzy from early in 2021 after the regulatory intervention, Mr Goh believes investors are now thinking a little longer before diving in.

“What may be keeping new investors away now that they are starting to question the boom and think, was it all that it was cracked up to be, is a SPAC really that much superior to an IPO?” he says.

“But right now, there are still a tonne of SPACs that raised a tonne of money, and they need targets.”

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Allen Goh

Baker Tilly United States

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