Irish-led Spac’s planned $1.74bn deal abandoned amid market turmoil

Collapse of merger could result in wind-up of ‘blank cheque’ company, rendering founder shares worthless

A plan by an Irish-led “blank cheque” company listed in New York to merge with a Belgian-owned technology company in a $1.74 (€1.67 billion) deal has been abandoned, amid heightened volatility in financial markets.

North Atlantic Acquisition Corporation (NAAC), founded by Irish packaging industry veteran Patrick Doran and corporate financier Gary Quin, raised $380 million in an initial public offering (IPO) in January 2021. The so-called special purpose acquisition company (Spac) agreed last December to merge with Telesign, a digital identity verification company.

NAAC now faces a risk of being liquidated early next year, as it only had 24 months from the IPO to seal a business combination. The Telesign deal was due to be a hugely lucrative transaction for the original Irish founders of the Spac. However, NAAC said on Friday that it would seek an alternative merger deal.

“We are disappointed that current market conditions made it impossible to complete our proposed merger, but Telesign is a great company with a strong management team and we are confident that it has a bright future,” said Mr Quin, NAAC’s chief executive officer.

Telesign’s Brussels-based parent Proximus first revealed in a statement shortly before midnight on Thursday that the merger, which would have left it with a 66 per cent stake in the combined entity, has been terminated.

“Since the announcement of the envisioned business combination in December 2021, the market conditions for public listings have significantly deteriorated due to external macroeconomic factors,” Proximus said, adding that it would look at different options to cover the $90 million of funding Telesign needs over the next two years to continue to grow.

Telesign, whose technology is used from logging into TikTok to resetting passwords for Alibaba, has forecast that its revenue will soar from $391 million last year to $1.1 billion in 2026.

There were already signs of problems in the lead-up to the announcement, as Wall Street’s recent love affair with Spacs faltered in the past six months as global equity markets slumped. NAAC postponed two shareholder meetings on the deal, scheduled, respectively, for May 18th and June 1st.

“Blank cheque” or “cash shell” companies have been a periodic feature of international stock markets for more than three decades. Spacs, the latest incarnation, became a hotspot of IPO activity in the US and, to a lesser extent, Europe in 2020 and 2021, amid ultra-low interest rates and surging equity markets. Spac IPOs face fewer regulatory hurdles than those of trading businesses, making a merger with such entities a popular backdoor way for companies to go public.

However, shares in companies that reversed into Spacs through mergers in recent years have plunged in value. The so-called CNBC Spac Post Deal Index, which is comprised of Spacs that have completed their mergers and taken their target companies public, has fallen by about 50 per cent so this year. The losses more than doubled the S&P 500′s 21 per cent year-to-date decline.

About 600 Spacs that went public since mid-2020 are still trying to complete deals, according to financial data group Dealogic. Many of these will not find targets before 24-month windows close and Spacs have to return cash to their own investors.

The original “sponsors” of NAAC, mainly made up of Mr Doran and his family, were on track to retain a 4.9 per cent stake, valued at $85 million, in the combined group after the Telesign merger, according to figures in presentations relating to the transaction. While the sponsors paid only $25,000 for the shares, they are worthless in a liquidation.

Mr Doran sold his Dublin-based packaging company Americk to Spanish group Saica in 2016 for an undisclosed sum. He is founder and chief executive of Woodberry Capital, a private investment company that has put money to work in sectors including logistics, technology and construction.

Mr Quin was vice-chairman of Credit Suisse’s investment banking division in Europe from 2010 to December 2019, and was involved in IPOs of Hibernia Reit, Irish Residential Properties Reit, Cairn Homes and Glenveagh Properties.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times