Hambro Perks Acquisition Company Ltd (LSE:HPA1), special-purpose acquisition company (SPAC), has revealed its plans for an initial public offer on London’s main market in order to merge with a UK “unicorn”.
SPACs are a form of shell company with no assets apart from cash and while London is by no means new to the ins and outs of cash shells, this would be the first to float under the Square Mile’s newly relaxed rules.
The SPAC plans to raise between £140mln and £150mln, with Hambro Perks, the London-headquartered investment firm behind the listing, contributing £35mln of its money.
Under London’s new SPAC regime introduced on 10 August, shell companies raising at least £100mln will not have trading in their shares suspended after a potential acquisition is announced, the IPO proceeds must be ring-fenced and investors will get to vote on the proposed ‘de-SPAC’ deal, among other investor protections.
London SPACs must find and acquire a target within two years, subject to a 12-month extension with approval from shareholders and a further six months if a ‘de-SPAC’ deal is close to being concluded.
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For HPAC, if no deal takes place after 15 months investors will get their money back, but if a deal is successfully concluded Hambro Perks will receive up to 20% of the acquisition value.
Dominic Perks, co-founder of Hambro Perks and the chief executive of the SPAC, said this would be the first shell company from the company and will “start the process of bringing a European tech champion to the public market”.
He said London was chosen as the home for HPAC “because it's the technology capital of Europe. The number of Unicorns in the UK and Europe has grown significantly over recent years as we have seen a migration of talent and capital to private growth companies.
“Investors want to back differentiated, scalable businesses with great leadership, and those are exactly the characteristics we'll be seeking in our target.”
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He said Hambro Perks works with any potential target using its usual method of identifying potential opportunities, teaming up with entrepreneurs and management teams and making “targeted interventions that support and encourage rapid growth in company value”.
Sir Anthony Salz, former senior partner of law firm Freshfields Bruckhaus Deringer and chairman of Rothschild & Co, is chairman of both HPAC and the investment firm.
He said the SPAC is “a natural extension of our existing investment strategy, enabling more established tech businesses to scale up by accessing public markets.
“The experience of our board and the wider Hambro Perks team, together with our extensive network of relationships across Europe, gives us confidence that we will find a suitable target.”
Cash shells in London
As they have no operating or investment assets, the only legitimate purpose of SPACs and cash shells is to find a private business that wishes to go public.
This is generally completed by the process known as a reverse takeover (RTO), as the private company is usually larger than the listed vehicle taking it over.
It is often a cheaper and simpler process for a company to reverse into a shell then to go through the full IPO process.
Cash shells, whether ‘dirty’ (ie resulting from a former operating company being scraped out and sold off) or ‘clean’ (with a new shell floated with the express purpose of looking for a RTO) have been popular in London before.
There were several new arrivals per year for a number of years on London’s AIM junior market before 2015 when rules were tightened, including requiring a minimum cash requirement of £6mln.
Shell scepticism in the City has lingered following a number of disastrous shell floats and over the previous rules that included a lack of shareholder approval, the pre-deal suspension and lack of regulatory engagement.
But while there have been self-titled SPACs float and agree deals UK Spac, a shell formed from the remnants of Mountfield Group PLC (AIM:MOGP) has agreed a deal with a cannabis grower, and a SPAC called Pharma C Investments has floated on London's off-market Aquis exchange, it looks like that London’s rule changes have come too late to capture the sort of levels seen in New York over the past two years, with over 700 SPAC IPOs raising $230bn, according to data from Dealogic.
However, if HPAC can make a success of this, then it may help to shift the view that anything London does is a trend contra-indicator.