September 23, 2020
In recent years, several European jurisdictions have seen the emergence of Special Purpose Acquisition Companies (“SPACs”) on their stock markets. As “blank check companies” formed by sponsors ̶ usually well-known and experienced investors who serve as the SPACs’ public faces ̶ SPACs have no mission statement, no intended business operations or even stated targets. Their sole purpose is to use the capital raised in Initial Public Offerings (“IPOs”) to buy other companies, which at the time of the IPO have usually not even been identified.
Following the IPO to raise capital, the sponsors usually have a limited period of time, i.e. 18 to 24 months, to identify a target company and complete the acquisition. Under US law, there is a rule indicating that the SPAC’s assets must equal at least 80% of the fair market value of the target company. In the event that the predetermined period lapses before an acquisition is completed, the SPAC is dissolved, and the IPO proceeds held in the trust account are returned to the investors.
Once the sponsors of a SPAC have identified a target company or group, the SPAC requires shareholder approval to complete the proposed acquisition. The SPAC will subsequently offer investors the possibility to either redeem their common stock in the SPAC for the original purchase price plus interest, or to sell their common stock on the market. Once acquired, the sponsors will profit from their stake in the new company, usually 20% of the common stock, while the investors receive an equity interest according to their capital contribution.
SPACs can provide various advantages over a traditional IPO, including quicker access to public markets, more attractive pricing and more flexible structures, greater certainty with respect to valuation, and greater flexibility relating to the content and timing of the communications with SPAC shareholders and other market participants. These promising advantages have been reflected in the increasing use of SPACs in the US, now accounting for approximately 20% of IPO proceeds in 2019 and 38% of IPO proceeds in 2020 in the year-to-date. U.S. SPACs have raised approximately $19 billion through July 2020, compared to $13.5 billion in 2019.
In the US, the practical results are, however, less clear. A Goldman Sachs report from August 2020 showed that the 56 SPACs examined outperformed the S&P 500 by an average of 11 percentage points in the first three months after an acquisition but lagged the broader market in the 12 months after the deal. A separate analysis by Renaissance Capital found that 89 SPACs that had gone public since 2015 had posted an average loss of 18.5%, compared to an average gain of 37.2% for traditional IPOs.
From a European perspective, there are some interesting differences. As the precise SPAC rules will depend on the legislation in place in any given country and can even differ from one stock exchange to another within the same jurisdiction, in general European SPACs tend to conduct larger IPOs and may execute multiple smaller acquisitions, while U.S. SPACs tend to conduct usually single, large transactions. European SPACs are also more flexible and able to complete their acquisitions more quickly, because of less restrictive regulation at the European stock exchanges and, in the U.K., the absence of the requirement for investors to vote on all suggested acquisitions.
Since 2016, Europe’s SPAC IPOs have seen 13 new listings. High-level examples include the French media conglomerate Mediawan, which was the first SPAC listed on Euronext Paris in 2016, Ocelot Partners and J2 Acquisition, which listed in London in 2017, Dutch Star Companies ONE, which listed on the Euronext Amsterdam in 2018, or Gear 1 Spa, a Milan SPAC listed in 2019.
More recently, on September 16, 2020, founders of investment firms Mariposa and Viking launched a SPAC IPO on the London Stock Exchange to raise $750 million, with Martin Franklin, the London-born founder of Jarden Corp JAH.N, as one of its sponsors. The SPAC intends to focus on acquiring an operating company or business with a significant proportion of its activities in North America.
Given the recent stock market developments and the expected resurgence of the M&A market, the opportunities for SPACs on the Brussels stock exchange seem promising. Our Brussels-based team is able to provide tailor-made advice for you should you be interested in pursuing such opportunities.
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