A SPAC (Special Purpose Acquisition Company) is a company without business activities that raises capital with the intention to purchases all or part of a non-listed company in the relatively near term. As it is not clear which company SPACs are going to acquire in advance and do not have any business activities at the time of the IPO, they are also referred to as ‘shell companies’ or ‘blank cheque companies'.
Stages of a SPAC
Before listing on the stock exchange (the offer)
A SPAC is established by a number of initiators ('sponsors' or 'founders'). They set up a SPAC to raise capital to buy all or a part of a non-listed company. These founders are often experienced persons from the business services sector. Once the company has been incorporated, institutional investors will be able to buy 'units' from the SPAC, consisting of a share and a warrant or a fraction thereof. The listing on the stock exchange will also take place at that time: the SPAC IPO.
Listed on the stock exchange, but before acquisition of the target company
At this stage, the SPAC is a listed company. Securities (units, shares and warrants) can be traded on the stock exchange. In this phase, a SPAC is still a ‘shell company’ looking for a company to acquire (fully or partially). SPACs usually have 24 months to find a suitable target. If the initiators are unable to find a target within that period, the SPAC will be dissolved. In principle, the holders of shares will then have their investment refunded.
After acquisition of the target
The initiators of the SPAC have found an acquisition target. If shareholders of the SPAC respond positively, the target can obtain the listing in collaboration with the SPAC. Shareholders of the SPAC who disagree with the acquisition have the option to not participate in the deal. In principle, these dissenting shareholders have their initial investment refunded. After the acquisition, the SPAC is no longer a ‘shell company’, it is a listed company with business activities. In this stage, a share in a SPAC is no longer different from a share of another listed company.
From the moment of its listing, a SPAC, like any other listed company, needs to comply with the Market Abuse Regulation. SPACs should ensure that inside information is disclosed as soon as possible in a manner which enables quick access and complete, correct and timely assessment of the information by the public. There are several situations that may trigger the obligation to publish inside information. For example, when sponsors exclusively negotiate with a target or on the closing of the deal regarding a business combination. The AFM performs real-time surveillance of SPACs’ price movements and press releases and will intervene if necessary.
Once SPACs find a suitable target, they should provide detailed information about the proposed business combination to the public, for example regarding the risks and the historical financial information of the target company. This is relevant for shareholders when deciding to vote in favor or against the proposed business combination during the shareholders’ meeting and whether they make use of their redemption rights. Also investors in the secondary market should be able to adequately value the business combination.
SPACs are usually not required to publish an approved prospectus regarding the business combination (in phase two). Details about the proposed business combination is therefore usually presented in a so-called ‘shareholder circular’. SPACs should be aware that this document should be consistent with the information included in the IPO prospectuses of the SPAC and have a level of disclosure similar to an approved prospectus. Please see ESMA’s Public Statement on the prospectus disclosure and investor protection issues raised by SPACs.
Investors should be aware that - unlike an IPO-prospectus - a shareholder circular will not be approved by the AFM. However, in the situation that SPACs do not inform investors in accordance with these requirements the AFM has supervisory powers to intervene and impose sanctions.
For more information about the Dutch SPAC market, see also edition 5 and edition 8 of the AFM Market Watch.