Return of the SPAC: Are football clubs going (back) to the stock market?
Stock markets this year, most notably in the U.S., have been boosted by the return of special purpose acquisition companies (SPACs) as a popular means to fundraise public M&A and bring private companies onto the public markets. Having seen an uptick in fundraising by SPACs since 2017, previous records have been shattered in 2020 as more than $36 billion had been raised on Wall Street as of mid-September. This comes at a time when football clubs and leagues are looking for investors and financiers to help steer their balance sheets through the Covid-19 pandemic. It is no longer only high-net-worth individuals and private equity funds looking to invest in football.
What is a SPAC?
A SPAC, also sometimes known as a “blank check company”, is a newly incorporated company with no business or material assets at such time that it is listed on the stock market. Investors are relying on the SPAC’s management to seek out an attractive target and negotiate satisfactory acquisition terms that will lead to the SPAC’s shareholders owning an attractive newly-listed public company. The shareholders of a potential target can be persuaded to have their company acquired by a SPAC in order for their company to be listed without the level of regulatory hurdles and marketing burden involved in the traditional route to the stock market for a company: completing an IPO.
Typically in the U.S., when a SPAC is listed on the stock market, each unit acquired by shareholders as part of the IPO comprises an ordinary share (typically priced at $10 per share) and a warrant redeemable to acquire a further share (or fraction of a share) for an agreed price (typically one-third or one-half of a share at $11.50 per share). The net proceeds of the IPO will be held in a trust account and only available to:
- fund future acquisitions of one or more target companies by the SPAC; or
- redeem the shares held by any SPAC shareholder that disapproves of a proposed acquisition by the SPAC, such redemption occurring upon completion of that acquisition; or
- redeem all shares of the SPAC if it fails to complete an acquisition within the completion window set out in its prospectus (typically 18 or 24 months from the date of the IPO).
The SPAC’s prospectus may set out investment criteria that indicate the likely industry sectors and size of its targets and the SPAC will be required to acquire a business (or businesses) worth at least 80% of the net value of the trust account. But while the SPAC’s management will have broad discretion in selecting its target, and there is a catalogue of risks involved in any SPAC investment, the SPAC has strings attached to protect shareholders. The SPAC is normally required, under the terms set out in the prospectus and/or applicable laws and regulations, to obtain sufficient shareholder approval for a proposed acquisition.
Following an acquisition, although it is the SPAC that has acquired the target company, the identity of the SPAC will typically be replaced by that of the target. The SPAC entity will be recognised as the public listed company representing the target. For this reason, the acquisition is also known as a De-SPAC transaction.
The acquisition: remaining listed on the stock market
Any potential acquisition by a SPAC will be governed by:
- the rules of the relevant stock market where that SPAC is listed (and where the target company will be listed post-acquisition);
- the requirements for regulatory approval by the governmental regulator of that stock market;
- the securities laws applicable to that stock market (and any other jurisdiction where the shares may be marketed to investors); and
- the company law and constitutional documents applicable to that SPAC and the target company.
An acquisition by a SPAC listed on the New York Stock Exchange (NYSE) will, therefore, be principally subject to the rules of the NYSE, the regulatory approval of the U.S. Securities and Exchange Commission (SEC) and the securities laws under U.S. federal law and the State of New York (as well as other “blue skies” state laws depending on the states in which the SPAC IPO is conducted). This will involve the filing of a proxy statement (in most cases) and a Form 8-K with the SEC, which will serve as the key listing document in place of the registration statement (such as a Form S-1) that would have been filed with the SEC if the target company was listed by way of a traditional IPO.
Equally a SPAC listed on the Main Market of the London Stock Exchange (LSE) will be principally subject to the rules of the LSE, the regulatory approval of the U.K. Financial Conduct Authority (FCA) and the securities laws under English law (including EU securities laws incorporated into English law). Listing rules governing a reverse takeover may also be applicable for SPACs listed on either the Main Market of the LSE or the Alternative Investment Market (AIM). The application of such listing rules would lead to the suspension of the listing of the SPAC’s shares once the potential acquisition is announced, the cancellation of the listing upon completion of the acquisition and the need to re-apply for the post-acquisition company to be listed (including publishing a prospectus or listing document, as applicable).
These suspension rules are often cited as the reason for a SPAC market not having developed in London as it has in New York. Historically, the difficulties faced in having a SPAC listed on the LSE have seen “Euro SPACs” launched on alternative European stock markets, typically Euronext. Euronext Amsterdam has a reverse listings policy that requires a document to be published with prescribed details regarding the acquisition.
The consequence of these distinctions is that no two SPACs will necessarily follow exactly the same process for launching the SPAC or completing its intended De-SPAC transaction. Any sponsor launching a SPAC and any football club approached as a SPAC target will be manoeuvring through a complex legal process.
Few clubs remain on the stock market
There was a time when many European football clubs, particularly English clubs, were listed on the stock market, with Tottenham Hotspur having been the first in 1983. The number has reduced significantly over the past 20 years. Many current English Premier League (EPL) clubs have been de-listed either due to a private takeover or financial difficulties, including Leicester City (2002), Chelsea (2003), Leeds United (2004), Aston Villa (2006), Manchester City (2007), Newcastle United (2007), Sheffield United (2009), Southampton (2009), Tottenham Hotspur (2012) and Arsenal (2018). This shift has been reflected by the cessation of the STOXX Europe Football index in August this year.
But prominent examples of listed football clubs remain across Europe. Manchester United (ticker: MANU, market: NYSE) is a particularly notable example, having been de-listed from the LSE in 2005 as part of the takeover by the Glazer family before being listed on the NYSE in 2012. Other examples include Juventus (JUVE, Borsa Italiana), Borussia Dortmund (BVB, Frankfurt Stock Exchange), Ajax (AJAX, Euronext Amsterdam), Olympique Lyonnais (OLG, Euronext Paris), Celtic (CCP, AIM) and Benfica (SLBEN, Euronext Lisbon).
Life in the public eye
Overseeing a football club that is a listed company involves additional responsibilities and expectations compared to privately-owned clubs. Whereas ambiguous interactions with the press may have once been a convenient way of maintaining confidentiality, misleading the financial markets is not an option for listed companies. Rules applicable to disclosure of price sensitive information will be triggered when the club decides that the head coach is due to be fired. A disclosure to investors about the club’s transfer budget may rile up the club’s fans to bemoan their club’s lack of aspiration.
In the same vein, financial performance and financial reporting cannot be peripheral topics. It becomes a core obligation for the football club. Shareholders and potential investors will require detailed quarterly or half-yearly financial reporting and access to club executives for a quarterly or half-yearly call, depending where listed. Whereas the club’s annual general meeting was once a quaint event for fans to heckle the club board, it is now a corporate executive event. Importantly the club’s executive personnel must consist of those with the credibility and persona to adequately communicate with investors and the stock market. Points in the league table and trophies in the cabinet will be assessed alongside the club’s share price.
Running a listed company brings another new dimension to club stewardship: dividends. When clubs are under private ownership, the board (handpicked by the owners) has wide discretion to choose an appropriate sum and convenient timing to pay dividends. As a listed company, dividend per share will be a new metric for club executives to accommodate. Whereas a club may still attract investors with a dividend policy that does not entail regular dividends, that will inevitably reduce the pool of potential shareholders. Those demands must be balanced against fan demands for reinvestment in the club.
The opening pitch
A SPAC, RedBall Acquisition Corp. (RedBall), is reportedly seeking to acquire a minority stake in Fenway Sports Group (FSG), the owner of EPL club Liverpool FC. FSG also owns Major League Baseball (MLB) franchise the Boston Red Sox, NASCAR team Roush Fenway Racing and regional sports television network New England Sports Network, among other sports and media businesses. Therefore, if such a transaction were to complete, it would not leave Liverpool FC itself as the listed company. But FSG would be obliged to report on the operations of the reigning EPL champions as one of the many businesses comprising the newly-listed sports conglomerate.
SPACs rely on convincing investors of their board’s expertise to acquire the right target. What has made RedBall especially noteworthy is its co-founders, Gerry Cardinale and Billy Beane. They hold numerous roles in sports ownership and management, including with MLB franchises the New York Yankees and the Oakland Athletics, French Ligue 2 club Toulouse FC, Dutch Eredivisie club AZ Alkmaar and English Championship club Barnsley FC. Beane is renowned for his use of statistical analysis in baseball decision-making, which was depicted in the 2011 movie Moneyball (based on Michael Lewis’ 2003 book). RedBall’s board also includes Richard Scudamore, Chief Executive of the EPL from 1999 to 2019.
Liverpool FC and RedBall may not be the last example of mooted tie-ups between European football clubs and SPACs. The various factors weighing on any proposed acquisition will include the ability to obtain league approval for new owners and directors, eliminating conflicts of interest with existing investments and any potential need for antitrust clearance. Each European football league will also have different dynamics as to how it responds to new owners.
But there is now plenty of dry powder in the hands of SPAC managers and they are up against the clock to use it. The public markets may now be another potential buyer whenever speculation arises regarding another European football club changing hands. The stock market has the deepest pockets amongst all of the potential suitors.
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