Spacs have a chequered history in Europe, but the investor reception for the asset class in the region is improving, after a $100bn boom of Spac IPOs in the US over the past 12 months.
Shares in Lakestar were trading at €11.15 by the late morning in Frankfurt on Monday, up 11.5% from the IPO price, and have stayed at that level throughout this week. The deal attracted strong demand during bookbuilding and was multiple times covered, according to sources close to the listing.
“We had a fantastic book,” said one of the sources. “There just have not been that many opportunities here in Europe so far. We are very familiar with the Spac statistics in the US.
“We ended up with 180 lines in the book and it was multiple times covered. The fact we saw not just hedge funds but also big institutions coming in was very encouraging, considering the pipeline that we have further down the line.”
In its flotation, Lakestar sold 27.5m units at an issue price of €10 each. Every unit includes one share and one third of a warrant, which trade separately from the shares.
Each full warrant entitles an investor to convert into an extra share at an option price of €11.50, one month after the Spac merges with a target company.
This mirrors Spac deal structures that have become commonplace in the US. Hedge funds can gain leverage on their investment in a Spac, which can be redeemed in full if they do not agree with the blank cheque company’s choice of acquisition.
“It is a levered, free option,” said a second source involved in the Lakestar IPO.
Lakestar, which is sponsored by Hommels alongside fellow venture capitalists Stefan Winners and Inga Schwarting, will use the proceeds of the flotation to acquire a pre-IPO European technology company.
“Through this listing, we aim to provide a strongly positioned tech company in Europe with access to capital, unlocking its growth potential,” said Hommels, the Spac’s chairman, in a statement on Monday. “We believe the Frankfurt Stock Exchange is highly attractive for tech companies as it is located in the middle of Europe, an area with many opportunities in the field of technology."
Hommels is a seasoned investor in technology companies, having founded European venture capital firm Lakestar.
He is well known as an early backer of Spotify and was on the Swedish music streaming company’s board when it completed its innovative direct listing on the New York Stock Exchange in April 2018.
The sponsors will receive a 20% stake in the Spac as a reward for setting it up and paying the costs associated with the listing. But unlike many of the transactions in the US, the sponsors of Lakestar have committed to an investor-friendly structure where instead of receiving their entire stake upfront, they are subject to an incentive plan linked to the share price performance of the Spac once it acquires a target.
“What is different to the US is that there is an earn-out,” said the first source close to the deal. “We tried as hard as possible with the founders to make it as shareholder-friendly as they could and set a great precedent.”
Lakestar is part of what is expected to be a wave of Spac IPOs in Europe.
Pegasus, a new Spac focused on the European financial sector, announced its intention to float on the Amsterdam Stock Exchange last week. Former UniCredit CEO Jean Pierre Mustier, LVMH founder Bernard Arnault, French asset manager Tikehau Capital and former Bank of America dealmaker Diego De Giorgi are the sponsors.
JP Morgan, Deutsche Bank and Morgan Stanley were bookrunners on the Lakestar IPO.