The plans are impressive and it is no coincidence that Jean Pierre Mustier, former head of Unicredit, chose the name Pegasus for his new stock vehicle: a winged horse from Greek mythology gave the name and adorns the website, which of course also includes a reference to the successful restructuring of the largest Italian bank by Mustier. In the case of Pegasus, Mustier probably wanted to start over as an entrepreneur, first set up a publicly traded shell, and then use it to buy a fast-growing financial firm.
But now Mustier is probably running out of time, and so are they Financial times recently found. If Pegasus does not find a viable company by next spring, Mustier will likely have to shut down the publicly traded vehicle and return the money to investors. The rules say so.
Mustier is not the only celebrity banker to dabble in a stock vehicle. The acronym Spac stands for “Special Purpose Acquisition Company” and seemed interesting to former managers not only as a second career path. Also involved in the market are the former head of Commerzbank, Martin Blessing, the former head of Credit Suisse Tidjane Thiam and Klaus Kleinfeld, the former CEO of Siemens.
First of all, Spac is empty dunes, investment companies that collect many hundreds of millions of euros from investors, although initially they do not have their own business, often only three to four employees, a website, and then a listing on the stock exchange. In return, they promise to buy a company in a maximum of two years, which will sneak under the mantle of the stock exchange and in which investors will subsequently participate in success or failure – ideally that investors can invest early and cheaply in a young company before it is worth billions much later. Additionally, investors receive interest on their money as long as Spacs has yet to find a takeover target, which was interesting at least in times of negative interest rates. If Spac’s management proposes to take over the unwanted company, investors can also vote against it and return their shares without loss. However, for the companies being acquired, the matter should quickly and easily pave the way to the stock exchange. In this way, the Italian menswear manufacturer Ermenegildo Zegna managed to enter the New York Stock Exchange.
The unwinding wave follows the spatial wave
It all sounded good at first, and indeed there has been a wave of IPOs on Spac since 2021. As of 2020, more than 600 vehicles around the world have raised $ 270 billion from investors. In Europe, it was only a fraction, but here too, about eleven billion dollars has been raised since 2020.
The global stock market crash and the uncertain economic climate meanwhile ended the boom. With interest rates rising, investors have lost the ability to protect their money from negative interest rates on space vehicles. Elsewhere there are more lucrative interest rates. In addition, there is a tightening of regulations by the SEC stock market supervision, which primarily wants to protect private investors. Because start-ups have deceived investors time and time again.
Not only has the number of new Strolls dropped sharply recently, but also the hundreds of vehicles already mentioned are running out of time: they urgently need to find companies that more or less match what they promised and which at the same time have owners who are willing to sell. For around half of Spac worldwide, the two-year acquisition deadline ends in the next twelve months. According to Dealogic data, of the 66 Spac that went public in Europe since early 2020, only thirteen have found the company, of which only eight deals have actually been closed.
The largest space in the world is giving up
This week, even Bill Ackman, the founder of the world’s largest space, gave up his search for an item to buy: the hedge fund manager admitted he had not found a company that met his quality and return criteria. The collected four billion dollars will return investors. Others have managed to take over, such as the former head of Commerzbank, Martin Blessing, or the active professional investor Klaus Hommels. However, Blessing only had a gaming company, not a fintech, and Hometogo, Hommel’s holiday home broker, had lost nearly 80 percent of its value since it went public a year ago. Spacs may not have been a good investment for most investors, and many of the founders likely paid more.
But as always, there were also beneficiaries on the capital market. Most notably, investment banks such as Credit Suisse, Citigroup and Goldman Sachs have made billions advising them on this issue. “Spacs will not replace normal IPOs,” says Berthold Fürst of Deutsche Bank. “But it will still exist as one of many instruments.” The federal government also wants to facilitate transactions with stock exchange shields.
Or maybe Pegasus “Mutier-Spac” will take off. In any case, the ratings of many financial companies have dropped so much lately that Mustier may find something cheap after all. The only question is whether the owners of the company will then also be willing to sell their business to Spac.