Special purpose acquisition companies (Spacs) are making a comeback on Wall Street after falling out of favour a few years ago.
Most such cash shells, or blank cheque companies, that listed during the last boom for such vehicles – in 2021 and 2022 – failed to complete a necessary merger and had to return money to investors.
But this year has seen Spac initial public offerings (IPOs) in the US raise about $17 billion (€14.7 billion) so far, as listing such a vehicle and targeting an acquisition remains far easier and faster than floating an operating company.
A trading company, for example, must prepare detailed financials, audits, risk disclosures and performance history to go about listing.
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Sponsors of the new wave of Spacs insist these are less speculative and more measured than in the past.
Donegal Investment Group, which floated in 1997 under the name Donegal Creameries following the tie-up of several dairy co-ops, is on track to become a cash shell after recently agreeing to sell its seed potatoes business, IPM, to Netherlands-based Royal HZPC Group.
It follows the gradual sale of other businesses over the past 14 years, starting with the disposal of its milk and retail business in 2011, followed by Monaghan Mushrooms, Grianán Estate Organic Farm, animal feed company Robert Smyth & Sons and dairy-based products business Nomadic. Over the past 10 years, Donegal has returned €96.6 million to shareholders.
The IPM deal involves a €16.5 million upfront cash consideration and the possibility of a further €4 million by the end of 2027, subject to certain performance targets being met.
It leaves Donegal with just an investment property in Sandyford and in potato seed companies in India and Kenya.
Donegal highlighted in a circular on an upcoming extraordinary general meeting on the deal that, following completion, it will become a cash shell company and be required by Euronext Dublin’s junior market rules to complete an acquisition – constituting a reverse takeover – within 12 months. Or face delisting.
The Irish market hasn’t exactly been a hotbed of activity in recent years. The last IPO was in late 2021. Since then, a number of companies have exited, including CRH, Flutter and Smurfit Kappa (now Smurfit Westrock).
Stockbroking firms will be certain to pitch the Spac idea far and wide. But will anyone bite? Or will become another footnote as the Dublin stock market continues to shrink?
