There has been a reality check after all the hype about special purpose acquisition companies, and in Switzerland, the troops have been stood down.

Professional sportspeople who are past their prime and bands who are no longer topping the charts at home can always hope of finding fame in other parts of the world. This also applies to special purpose acquisition companies.

Big Plans in the Middle East

The promoters of these exchange-listed shell companies are in the process of spreading the craze from Wall Street to new markets. They have high hopes not only of becoming big in Japan and the rest of Asia but also in Africa and the Middle East.

Abu Dhabi’s sovereign wealth fund, Mubadala, intends to set up two Spacs, a move the «Financial Times» (behind paywall) described as a clear case of «Fear of missing out».

Home for ex-Bankers

But what exactly are Spacs? Also known as blank-check companies they go to the stock exchange for money in advance to buy private companies which in turn become quoted on the stock exchange through the backdoor. That seemed like a tempting idea during the equities boom after the coronavirus crash of spring 2020.

A phenomenon that flourished during the Spac boom was well-known bankers such as the former CEOs of UBS and Credit Suisse, Sergio Ermotti and Tidjane Thiam, becoming involved.

Tide Turns

Last year investors, from the U.S. and Europe in particular, poured over $70 billion into U.S. Spacs. In the first quarter of 2021, it was $96 billion. However, in April and May it was just $7 billion as the tide began to turn, including in the regulatory sphere.

It is obvious that Spac mania has evaporated from western markets.

Swiss Hesitancy

Switzerland as the largest offshore financial center in the world has remained immune to Spacs’ charms.

Exchange operator SIX’s regulatory board did some groundwork and Zug-based asset management company Veraison Capital was lining up on the starting grid as a sponsor of the first Swiss Spac, VT5, but financial regulator Finma then caused the race to be abandoned. The watchdog had reservations about investor protection and in March instructed SIX to take another look.

Billions Lined Up

A spokesman for SIX said work was ongoing. Veraison co-founder Gregor Greber expressed confidence. «VT5 is ready and is looking forward to when – hopefully soon – the regulations will allow companies in Switzerland to be quoted on SIX via a Spac.»

These comments come at a moment when the question arises in relation to the hundreds of existing Spacs of what they are going to do with all that money. If a Spac cannot find a suitable target within a set period it is liquidated and the money repaid. Enormous amounts are waiting in the wings. J.P. Morgan is talking about over 400 Spacs looking for companies to buy with $130 billion in capital and several times that in loans.

Investors Pull Out at Wrong Time

Spending all that money is proving more difficult than they thought. Both the number of fresh Spac listings and their company takeovers have waned. J.P. Morgan calculated that in February blank-check companies carried out 49 deals worth $116 billion but in June it was just 12 worth $21 billion, a trickle compared with the flood at the start of the year.

In addition, often half of the investors withdraw their money when a Spac intends to take over a target company.

Sustainable Level

Some investment bankers such as the head of J.P. Morgan (Suisse) Nick Bossart have not yet given up on the Spacs market. «We’ve seen a significant cooling of the Spac trend compared with the start of the year», he recently told journalists. In the medium term, Bossart considers listings at last autumn’s level, before the craze took off, sustainable.

However, it is an open question whether the concept of blank check companies will ever take off in Switzerland.