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Spac share prices slump as enthusiasm wanes

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Shares in businesses that went public through deals with blank-cheque companies have dropped by an average of two-fifths from their highs, as appetite for the once red-hot sector of the US stock market cools rapidly.

Of the 41 blank-cheque companies that have completed transactions since the start of 2020, only three are even within 5 per cent of their share price peaks. Eighteen of them have more than halved, and several are down by more than 80 per cent. The average decline is 39 per cent.

The figures come from a Financial Times analysis of data from Refinitiv tracking special purpose acquisition companies that acquired businesses worth more than $1bn, and come against the backdrop of a wider US stock market rally that set a new high in the past week.

Spacs, which raise money from investors on the promise of merging with an unidentified private company, have been among the busiest segments of global markets over the past year. Nearly half of the $230bn raised globally in new listings have gone to Spacs.

Less than two months ago, investors were still enthusiastically chasing Spac shares higher after companies announced their acquisition plans. Groups ranging from electric vehicle developers and software companies to mortgage originators chose to go public via deals with a Spac instead of the traditional route of an initial public offering.

The frenzy saw blank-cheque companies break records in terms of fundraising and dealmaking in the first quarter.

But deals are now taking longer to complete as regulators take a closer look at the disclosures and revenue forecasts being made by the companies, and institutional investors that typically fund the deals show more caution. As a result, new Spac launches have slowed to a trickle.

Bar chart of Share price from peak (%) showing The 10 Spac businesses down most from their share price peak

Shivaram Rajgopal, a professor at Columbia Business School, said that historically during a market frenzy there were a higher number of underperforming companies that go public as they try to ride the wave, and this trend had been true for Spacs. 

“When there’s overvaluation, when sentiment is going crazy, the more marginal company is likely to go public,” he said.

The share price declines and slowdown in new deals suggest retail investors and other market players are cooling in particular on start-ups with little to show in the way of revenue or often even a product, which were among those whose shares rose the most during the boom.

Shares in electric vehicle start-up XL Fleet shot up by almost 70 per cent to a peak of $35 after it went public via a Spac in December, before declining 80 per cent to just under $7 in the following months. Tortoise Acquisition Corp, the shell company that took truck parts maker Hyliion public, saw its share price increase fivefold after it announced the merger, but it is also on the list of stocks down more than 80 per cent.

Several retail investor favourites have come under attack by short-sellers, including electric truck developer Nikola and battery developer QuantumScape.

Of the Spac deals completed since January 2020, eight have fallen so heavily they now trade below the $10 at which the Spac’s shares were originally priced when they first raised cash.

That includes the two largest blank-cheque deals to date, the home loan originator United Wholesale Mortgage and healthcare group Multiplan, which went public in transactions with Spacs backed by billionaire private equity investor Alec Gores and former Citigroup dealmaker Michael Klein, respectively.

Shares in Spacs that are still hunting for deals have also fallen. More than two-thirds of the 425 blank-cheque companies that have listed since January are trading below $10, according to an FT analysis of Refinitiv data. This may suggest there is investor scepticism that they will find acquisitions that add value.



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JD.com’s logistics arm seeks to raise up to $3.4bn in Hong Kong IPO

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JD Logistics, the delivery unit of Chinese ecommerce group JD.com, will seek to raise up to $3.4bn in what would be one of Hong Kong’s largest initial public offerings this year.

The company’s decision to list follows a boom in online shopping during the coronavirus pandemic. But a tougher regulatory environment for Chinese technology groups and a recent fall in the shares of SF Holding, one of JD Logistics’ largest competitors, pushed the company’s proposed IPO price down by about a quarter, according to a person close to the deal.

JD Logistics will sell 609.2m shares at HK$39.36-HK$43.36 ($5.07-$5.58) each. The final price will be set on Friday and the shares are expected to start trading on May 28, according to terms of the deal seen by the Financial Times.

The IPO would be the second largest in the city this year after Kuaishou, a Chinese viral video app, raised $5.4bn in February, and would be the third blockbuster listing by JD.com in Hong Kong in the past year. JD Health, which sells pharmaceutical and healthcare services online, completed a $4bn IPO in December and JD.com carried out its own secondary listing in the territory last June, which raised a similar amount.

Hong Kong has benefited from a flood of high-profile listings by Chinese technology companies in recent months and has hosted more than $20bn of IPOs this year, according to data from Bloomberg.

JD.com created its logistics and delivery arm in 2007 and spun it out into a standalone unit a decade later. The company operates more than 900 warehouses in China and provides delivery and warehousing services to third parties.

But the group is among those under pressure as China increases scrutiny of its largest internet groups. Last month, officials told 13 of the country’s biggest tech companies, including fintech subsidiaries of JD.com, Tencent and ByteDance, to “rectify prominent problems” on their platforms. The push was seen as a sign that regulatory focus on the sector was spreading beyond Jack Ma’s Ant Group, after the $37bn IPO of the fintech company was scuppered last November.

Separately, shares in SF Holding, China’s largest listed delivery company, fell sharply last month after a quarterly loss rattled investors and prompted scrutiny over the high valuations placed on Chinese companies.

“Competition in China’s logistics space is fierce, especially after [Indonesian company] J&T Express entered the market, which has had an impact on other logistics companies’ performance and will hit JD,” said Li Chengdong of Haitun, an ecommerce think-tank.

JD Logistics was initially the delivery arm of JD.com’s ecommerce site but an increasing portion of its business comes from ferrying packages on behalf of third parties.

Cornerstone investors in the JD Logistics IPO, including technology group SoftBank’s Vision Fund, Temasek Holdings, Singapore’s state-backed investment company, and investment firms Tiger Global and Blackstone have subscribed to about $1.5bn of the shares, according to the terms of the deal.

Bank of America, Goldman Sachs and Haitong International are the joint sponsors for the listing.

Additional reporting by Ryan McMorrow in Beijing

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Volvo Cars: race to net zero marks revival of IPO plan

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Volvo Cars has been waiting at the lights for years. The Swedish carmaker’s journey back to the stock market was halted in 2018 when Chinese owner Geely scrapped flotation. A subsequent plan to merge and float the two businesses was dropped in February. Now the company is considering an initial public offering. Getting a green signal will require a sensible price.

The last IPO plan stalled when investors baulked at the $30bn sought by Geely. Volvo has advanced since then, particularly on electrification. Shares in peers such as Daimler, BMW, Stellantis and VW trade on an average trailing enterprise value-to-ebitda multiple of 9. If Volvo achieved the same, it would have an enterprise value of almost $20bn, using figures from S&P Capital IQ. The company is likely to argue that its success in China merits a higher valuation. But its operating profit margins are about half those of peers. 

Profitability should improve, as battery advances cut the cost of making electric cars. But Volvo has already benefited from a supportive owner. Geely, which paid $1.8bn in 2010 to buy Volvo from Ford, has given it access to funds and shared the capital costs of developing new platforms. That helped the return on capital shoot up to an average of 9 per cent over the past six years, well above that of BMW and VW. 

A lot depends on continued collaboration with Geely. An outright merger was deemed too complicated because the complexity of the ownership structure made it difficult to agree a price acceptable to Geely’s minority shareholders. But the Chinese company will retain a big stake. The two businesses will jointly own the legacy internal combustion engine business and each owns half of Polestar, the premium electric brand. 

Polestar aims to produce the first genuinely net zero car by 2030. That, and other goals, means that Volvo has some of the most ambitious climate plans in the car industry. Those green credentials could add some extra oomph. Even so, too racy a valuation will impede its chances of a successful float.

Lex recommends the FT’s Due Diligence newsletter, a curated briefing on the world of mergers and acquisitions. Click here to sign up



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Commodities broker Marex looks to list on London Stock Exchange

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One of the brokers with rights to trade on the historic trading floor London Metal Exchange is heading for an initial public offering as commodity markets enjoy the biggest boom since the early 2000s.

Marex, a brokerage controlled by two former Lehman Brothers investment bankers, said on Friday it was considering listing on the main market of the London Stock Exchange.

Should it proceed, Marex said the offer would consist of a sale of shares by existing investors and that it was aiming for a free float of at least 25 per cent, meaning it would be eligible for inclusion in widely followed FTSE indices.

London-based Marex employs about 1,000 people and is one of nine members of the Ring, the LME’s historic open outcry trading floor that is now threatened with closure after more than 140 years. It has a 16 per cent market share on the LME.

The company is controlled by JRJ Group, a private equity firm founded by Jeremy Isaacs, the former head of Lehman’s European operations, and Roger Nagioff, the bank’s ex-head of global fixed income.

JRJ has a 41 per cent indirect economic interest in Marex. It is expected to reduce that stake through the London IPO although it will remain a large shareholder.

People familiar with the plans said Marex was seeking a valuation of $650m-$800m. The company is about half the size of US rival Stonex Group, which has a market capitalisation of almost $1.4bn. The IPO could come as soon as June.

The company, which has been expanding aggressively through acquisitions, made pre-tax profits of $55m in the year to December, up from $46.6m a year earlier, on net revenue of $414.7m.

However, in 2018 pre-tax profits were just $13.4m after Marex took $31.9m of legal provisions related to a warehouse receipts fraud.

Marex makes more than half its revenue from commodity hedging services that help big commodity producers, consumers and traders manage price risk. Commissions from the group’s top 10 clients increased by 17 per cent to $49m in 2020.

“The attractiveness and resilience of our business model is demonstrated by our latest set of results, which showcase continued strong performance despite the obvious macro headwinds,” said Marex chief executive Ian Lowitt, who was paid $4m last year. His basic salary is almost twice that of the LSE’s CEO David Schwimmer.

JRJ Group and its partners Trilantic Capital Partners and BXR Group acquired a majority stake in Marex in 2010. A year later it bought Spectron to create one of the biggest commodity brokers in the world. The company has been up for sale for several years as JRJ has sought an exit from its investment.

It emerged in November that Marex had appointed Goldman Sachs and JPMorgan to help advise on a possible stock market listing. One of its no- executive directors is Stanley Fink, former CEO of hedge fund Man Group.

Marex said on Friday that acquisitions and expanding into “adjacent products” would continue to form a “central pillar of its strategy”. In November, Marex acquired Chicago-based equity derivatives firm XFA.

Commodity markets have boomed over the past year on the back strong demand from China, a post-pandemic pick up in other big economies and bets on the “greening” of the world economy.



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