What’s the spec… Chairman Louis Vuitton and Shaquille O’Neill

“The richest person in Europe has joined the SPAC craze.”

On the 15th (local time), CNN of the United States reported that Bernard Arno Louis Vuitton, Chairman of the Moe Hennessy (LVMH) group, is about to set up a spec. LVMH, led by Arno, is a company with luxury brands such as Louis Vuitton and Bulgari. According to Bloomberg News, Chairman Arno’s assets are $114 billion (about 126 trillion won), ranking 4th in the world and 1st in Europe. According to the Financial Times (FT) and others, Arno is preparing a spec named’Pegasus Europe’. It plans to secure hundreds of millions of euros by listing on the Amsterdam Stock Exchange in the Netherlands after establishing SPEC with the funds of’Group Arno’ owned by Arno.

In Wall Street, New York, USA, from large hedge funds to politicians and sports figures, they are striving to establish specifications one after another. Elliott Management, an American activist hedge fund manager, is in contact with the bank to raise $1 billion in funding to establish the spec, the Wall Street Journal (WSJ) reported. Paul Ryan and former US Speaker of the House of Representatives set out to establish a spec for Billy Dodo, the real protagonist of the movie’Money Ball’. Shaquille O’Neill, a former U.S. professional basketball (NBA) star, announced in October last year that he would set up a spec with the purpose of acquiring a media and information technology (IT) company with Martin Luther King III, son of a human rights activist Martin Luther King.

The amount of financing for SPEC, which was listed on the US stock market last year, reached an all-time high of 83.2 billion dollars. Compared to 2018 ($10.7 billion), it increased by 677%. By the 17th of last month, which entered this year, the spec was listed worth 15.7 billion dollars.

SPEC is a’paper company’ (Paper Company) whose sole purpose is to publicly recruit investors and then list them on the stock market and use the funds to acquire and merge unlisted companies. The spec works in the opposite way to a regular public offering (IPO). SPEC is also called a’blank check company’ because it first raises funds and then searches for mergers and acquisitions.

If SPEC selects promising companies and succeeds in M&A, SPEC investors can expect a significant return on investment. On the other hand, if a company M&A by SPEC does not receive a good evaluation on the stock market, SPEC investors may not be able to properly rescue the principal. In the US, if the M&A cannot be completed within two years after the SPEC listing, and in Korea, the principal and some interest are returned to investors.

In general, the process is complicated and difficult for a private company to list on the stock market. It may take 2-3 years to get listed. However, if a non-listed company carries out a specification and M&A, the time and procedure required for listing can be shortened. The hydrogen car maker Nikola, which had a “fraud controversy” last year, was listed on the stock market through M&A with SPEC. Nikola hasn’t sold a single car since its establishment in 2014, but it merged with a spec called’Vecto IQ’ in June of last year. The amount raised by the spec is about 700 million dollars.

Various specifications are also listed on the domestic stock market. According to the Korea Exchange and the Financial Supervisory Service, there were 17 specifications that completed corporate M&A last year. It was the largest since 2017 (21 locations). Since the introduction of the specification system in Korea in 2009, there are 189 specifications (3 KOSPI and 189 KOSDAQ) listed on the stock market until last year. Of these, 94 succeeded in M&A within three years.

If you leave the money to the spec, you must also consider the investment risk. There is a risk of overestimating the corporate value if SPEC fails to meticulously verify in the process of merging unlisted companies. Park Jong-sun, a researcher at Eugene Investment & Securities, said, “It is harder to look into companies systematically than IPOs when listing through a merger through specifications. Investors in specifications should take a deeper look at the financial statements of the acquired company, the company’s business details, and technology evaluation,” .

Reporters Seungho Lee and Sangeon Yoon [email protected]