Investment

The SPAC boom will mean many more family businesses will list

The current glut of SPACs looking to merge with private businesses will mean many family businesses will likely seek a listing in the next few years as they are peppered with alluding deals to merge with acquisition corporations. 

The SPAC – special purpose acquisition company – boom is now a widely known phenomenon in the business world. But their rise to prominence has been very swift. When Family Capital first wrote about them back in May 2019, outside of the world of high finance, very few people had heard of them. That’s changed in the last six months as SPACs routinely hit the front page of the mainstream business media. 

Their numbers and the amount they are raising has grown almost exponentially. In the last 18 months, more than 230 new SPACs have made their initial public offering (IPO) debut, raising more than $77 billion. Last year, 104 SPAC business combinations were signing and/or closed.

Of course, that anticipation from SPACs has to be weighed against the traditional reluctance of businesses in continental Europe to embrace newfangled financial engineering concepts emerging from the US

But this might only be the beginning of the SPAC boom, because there are estimated to be more than 200 SPACs looking to partner with businesses. And most of them are in the US. SPACs in Europe have yet to take off, but financial regulators there are under pressure to ease SPAC rules to allow more to take place. 

SPAC sponsors, effectively the investors that underwrite SPACs, like private equity groups, venture capital, hedge funds, and family offices, also aren’t short of capital to back them.

OK, some reckon a SPAC bubble is emerging, but investors are so far unconvinced. Just in the last month, more family offices than ever backed SPACs, as detailed by Family Capital here. 

In fact, probably the biggest problem for SPACs is the lack of companies to partner with. But a big pool of potential partner companies is family businesses. SPACs and their sponsors like family businesses because they offer sustainable companies with proven business models often extended over multiple generations of family ownership. 

Family businesses are also warming to SPACs. With many family businesses looking to deal with issues like digital disruption and generational ownership/management difficulties, partnering with a SPAC allows them to raise capital to help them make the transition to the next stage of their growth efforts. SPACs also offer them a less expensive and bureaucratic way to list rather than a traditional IPO. 

Also, the companies SPACs are acquiring are usually much bigger than the size of the SPAC, allowing owners of the operational business to obtain a big shareholding in the new public company. Shareholders of the operational business also know what price they are getting for their business because the price is negotiated with the SPAC before the merger. This helps to alleviate owners concerns of listing in a volatile stock market through a traditional IPO. 

Add in the fact that it’s increasingly becoming a seller’s market in the SPAC universe given the proliferation of their numbers, family businesses are likely to be especially drawn to the model. 

Given some positive noises being made by European regulators towards SPACs, their backers will be sizing up the market there with some anticipation. On the other side of the equation, mid-sized family businesses in Europe might be particularly of interest in the SPAC model to raise much-needed capital. 

Of course, that anticipation has to be weighed against the traditional reluctance of businesses in continental Europe to embrace newfangled financial engineering concepts emerging from the US. And whether Europe’s regulators will really give SPACs much leeway remains to be seen. 

But SPACs, despite some misgivings, could help to reinvigorate what some see as an increasingly moribund family business ecosystem in Europe.

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