Fidelity Warns On SPAC Listings
Adam Welham, head of European equity capital markets at Fidelity Management & Research, said the increase in listings by Special Purpose Acquisition Companies is potentially dangerous.
Welham spoke on a panel, Global IPO Innovations – Why Now?, at UK FinTech Week on 19 April. He said the explosion of listings by SPACs in the US is the most extraordinary development in ECM in the last 20 years.
“You’ve got this alternative route to an initial public offering which is potentially quite a dangerous development for a number of reasons,” he added.
🗣️"There are lots of reasons why it’s [direct listing] being pursued more. It’s a combination of price and transparency, and companies are trying to take a bit more ownership of the process.”
— Innovate Finance (@InnFin) April 19, 2021
Welham continued that the process is too fast for fund managers to make decisions. “When SPACs issue equity to finance the acquisition it all happens really quickly,” he said. “You can have just have one meeting in one week.”
Marcus Stuttard, head of UK Primary Markets and head of Aim at the London Stock Exchange Group, said on the panel that SPACs have been in the London market for many years under a broad range of names.
He said he has spoken to a number of companies who have looked at coming to the public markets via a SPAC but found they prefer a traditional initial public offering.
“They can do an IPO roadshow and have more control over the investors that come on to their register,” Stuttard said. “They are concerned that if they get acquired by a SPAC, there are potentially shareholders on the register that might not be natural holders.”
He does not expect the same SPAC volumes in London as in the US as companies can engage at a much earlier stage with investors to build relationships and can carry out pre-IPO roadshows.
Katherine Wilson, investment director at fintech-focused venture capital firm Illuminate Financial, said on the panel that one of the historical benefits of an IPO was access to a huge pool of capital, which had not been available in private markets.
— Illuminate Financial (@IlluminateFM) April 21, 2021
Wilson said: “When that lever starts to be less of a draw, you start to weigh some of the potential downsides of an IPO such as increased scrutiny and the resources required for investor reporting so companies are staying private for longer.”
She continued that there is room for improvement in the IPO process.
“There can definitely be streamlining of the Excel spreadsheets that are emailed around to get feedback and work out pricing,” added Wilson.
In addition the market needs to be better educated about technology with new business models so there is not an initial sell off when the company lists.
Anand Sambasivan, chief executive of PrimaryBid, a UK fintech company that connects companies to their community on public offerings, said on the panel companies are getting more demanding on what they want from an IPO process – they do not want a big pop on the first day of trading and they want millions of their community to be involved in the deal.
“We did that for Deliveroo and I remain extremely proud of what we did there,” he said. “This was a landmark moment as it was the first fully integrated IPO experience where a company allowed access to millions of their customers. This is a new category of owner in the capital markets that we are proud of bringing in.”
Sambasivan continued that he does not use the term retail investor. Issuers do not have transparency into the funds raised from investors that are not institutions.
“I want to bring the same level of structured data to the issuer for tens of millions of people in real-time,” he added. “ The company can see how much comes from employees, customers, friends and family in order to make allocations. I hope that is the way the capital markets progress.”
He continued that issuers have chosen direct listings in order to avoid their shares been mispriced but the structure has flaws including not being able to curate shareholders and the inability to raise capital.
“I’m really thrilled that all of these new routes are emerging so that companies have other ways of entering the public markets,” said Sambasivan.
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