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The spectactular rise, fall and maturity of the Spac

Prepare writing a check

Having survived massive hype and a brutal reassessment, blank cheque companies are finding their purpose

Special purpose acquisition companies (Spacs) are finally shedding their image as get-rich-quick schemes aimed at anyone bold or foolish enough to take a punt.

It has been a wild ride. After a sudden, frantic surge in popularity that was obviously going to result in burned fingers, a violent sector rotation crushed the tech stocks they were keen to become as they jostled in the hunt for Europe’s rare unicorns.

The Ipox Spac index had tanked long before volatility threw off the rest of the global stock markets. It plunged even deeper in 2022.

But instead of quietly disappearing, Spacs have finally undergone a metamorphosis into something useful. In fact, the only significant initial public offering in Europe since the invasion of Ukraine has been that of New Energy One Acquisition, a Spac sponsored by the Italian energy group Eni.

Big, well-known companies like Eni and the tech investment bank GP Bullhound have added Spacs to their capital markets toolbox, and it looks like they are here to stay.

For Eni, the blank check company is part of its green transition strategy, just like the flotation of its Norwegian oil and gas subsidiary Vår Energy earlier this year.

Eni could have looked for an attractive company to buy and funded the merger through a capital increase, but after all the Spac market has been through, this national energy champion still seems to believe in them enough to give it a try, even in a tricky market for IPOs.

Unlike at the height of the feeding frenzy for speculative investments, Spacs these days get done at terms that are extremely generous to investors — Eni put in extra capital to guarantee investors a 3.25% return on their investment, even if they redeem the shares early.

One hedge fund manager admitted to GlobalCapital that he had taken part in the IPO without any intention of waiting for a merger, just for a small safe yield in violently unpredictable markets.

But this investor-friendly turn seems like a natural and necessary pendulum swing after the first big wave of Spacs, which promised investors hardly anything at all.

It also seems reasonable, if not ideal, that a Spac sponsor would have to offer investors a sweetener like this when equity capital markets are going through such a tough time.

Eventually, volatility will recede, rising interest rates will offer investors better sources for safe yields elsewhere, and Spacs might finally settle down and become what they should always have been — a small but reliable part of the primary equity capital markets.

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