American SPACs take on French Tech

“If you don’t have your SPAC, you’ve missed your life” could become the new favorite phrase within French Tech. The pressure has been very clearly accentuated on French entrepreneurs since the start of the year, with the declared will of the promoters of this financial vehicle to complete operations with great strides now in Europe. It’s just that the hour is ticking …

The principle of the Special Purpose Acquisition Company (SPAC) is to raise funds on a stock exchange with the promise of finding a target within 24 months. As a result, the company concerned can access listing in a few months, compared to 18 to 24 months during a traditional IPO process. The problem ? With a total of 462 SPACs, which have raised nearly 100 billion euros since the start of 2020 in the New York market, these empty shells must now fulfill their purpose. In lack of candidates, they are now turning massively to Europe.

Contact points

They are very enterprising and seek targets, tell for example Ishmael Ould, at the head of Wynd. They asked me if I didn’t have friends, especially at the head of companies in the Next40, to whom I could speak. “” Since a few weeks, we approached repeatedly, a bit like all known French and European scale-ups ”, continues Jonathan anguelov from Aircall. Contact points are multiplying and European nuggets have suddenly become very attractive in the eyes of American investors. Makram azar, former banker, founder and chairman of the NYSE-listed SPAC Golden Falcon Acquisition Corporation with the mission of finding a nugget in Europe, sums it up as follows: PSPC is a tsunami that has started to sweep across Europe. Deutsche Bank predicted that they could represent a third of the market soon. “

Candidates with a precise profile

Despite the euphoria and excitement surrounding the subject, French startuppers must fully understand all the intricacies of such an operation, warns Franck Sebag, partner of EY: French start-ups must not think that it is simple and I see big risks, especially since the merger with an American company implies heavy consequences in terms of governance in particular. “ The main risk for the targeted companies is based on unpreparedness to be quoted much faster than expected. “It is a recurring subject at the moment and we are approached by all types of actors, explains Philippe Corrot, at the head of Mirakl, the most recent French unicorn. This raises the question of our IPO, which should be the next step. It’s a time-consuming, expensive process, we can’t afford to be deceptive, and that’s not our priority right now. “

If, in the short term, the doors of future champions close politely in the face of the PSPCs, the temptation to move towards players whose size is lower than the market benchmark (valuation of $ 1.5 billion on average) is real. “We have to be vigilant with the managers of these vehicles. They might be tempted to house companies that are not the best there, and only to make a quick profit, says Alain Godard, Managing Director of the European Investment Fund (EIF). The market is exponential and conflict of interest is possible. “ Especially since some venture capital funds could see it as an opportunity to offload part of their assets, fears Stephan Dietrich, former co-founder of Neolane and advisor to General Catalyst: Investment funds already present in private companies are sellers because the market is at its highest. Their search for liquidity and their majority position in many cases can encourage them to conduct operations for French companies. “

About 500 billion dry powder

With this wave hitting Europe, fears are focused on the entire tech financing chain, which is growing but still fragile. The term “bubble” is carefully avoided, but Stephan Dietrich does not hesitate to mention it: “With the leverage that each of the 225 SPAC tech possesses, there are about 500 billion dry powder. It smacks of the irrational exuberance that Alan Greenspan had denounced four years before the explosion of the internet bubble. “ Other major players prefer to delay, like Benoist Grossmann, partner of Idinvest: “A year after the first confinement, it seems mind-boggling to find yourself in such a situation, which could create an imbalance. But for all that, I refrain from reading the future, who knows how this financial dynamic will be able to end? “

Only consensus: the future of PSPCs will be dictated by the performance of the companies that join them. And for all the leaders of French start-ups, it is now impossible to ignore it, underlines Erwan Keraudy, co-founder of CybelAngel: This tool could upset the landscape of buyers for our businesses and we must therefore remain vigilant. One of my worst fears as a CEO would be that I didn’t see such a change coming. “

The key numbers

Tech is the main sector that attracts investors to this vehicle. Only 32 of them merged with their target and 41 announced it. This is the amount available in the PSPC market to merge with tech companies. If you take the ads into account, the number of PSPCs could reach a record level of 800 this year. The number of start-ups, in the world, having raised on a valuation higher than the billion dollars, with private actors. These are the primary targets of PSPCs. While the median ticket for funds raised by US PSPCs is around $ 300 million, a handful of them have passed the billion mark.

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