What is a SPAC?
A Special Purpose Acquisition Company (SPAC) is a publicly traded cash shell company, created with the sole purpose of acquiring a non-listed operating company (or multiple companies at the same time) within a certain defined time frame.
The securities of such SPACs can be listed and traded on the Swiss stock exchange.
The typical life cycle of a SPAC that goes public has three phases: (1) IPO of the SPAC on the exchange; (2) the period for searching the acquisition target; (3) and the so called De-SPAC, which either takes the form of a business combination or a liquidation and delisting.
SPACs are initiated by the so called SPAC sponsors. A SPAC then raises capital through an initial public offering (IPO), the proceeds of which are held in an escrow account until released to fund the acquisition. The SPAC listing process is identical to the one already followed by companies in a standard listing approach (eg, for an IPO).
A SPAC has two ways in which it can go public on SIX Swiss Exchange:
- list equity securities or
- list convertible-bond securities, which are converted into nominally-equivalent shares at the De-SPAC.
Once the SPAC’s securities are listed on the exchange, public investors can buy and sell these securities like any other security listed on the Swiss stock exchange.
As a business combination. Once the acquisition is approved, the De-SPAC process begins. The business combination becomes an operating company listed on the Swiss stock exchange and SPAC investors become shareholders of the acquired target company. The combined entity must request a transfer to one of the SIX Swiss Exchange listing standards for operating companies within three months of the De-SPAC.
As a delisting. If the SPAC fails to close a transaction within three years after the listing, it will automatically be delisted and liquidated and the funds in the escrow account will be returned to the investors.
Main Cornerstones of SPACs on the Swiss stock exchange
Investor protection is paramount.
Companies seeking a listing as a SPAC are principally subject to higher listing requirements (in terms of disclosure requirements) as other listed companies on SIX Swiss Exchange to uphold an appropriate degree of investor protection. The key additional requirements are mentioned below.*
- SPACs are companies limited by shares according to Swiss Law whose only purpose must be the acquisition of, or merger with, one or more operational companies.
- The capital raised at the IPO must be placed in an escrow deposit account at a bank.
- Within 3 years (or less), a business combination must be completed.
- The company’s founders, sponsors, member of the board of director, and management must have a lock-up agreement in place that restricts them from selling shares in the business combination for at least 6 months after the De-SPAC.
- The company is required to publish additional, specific information in the prospectus. Among others, it must disclose:
- Information on its founders, on their economic interests in the company (incl. compensation schemes), on potential conflicts of interest, and on lock-up periods;
- the conditions under which additional capital may be raised (incl. private placements);
- the amount an investor would retrieve if he/she opposes a De-SPAC or if the SPAC is delisted and liquidated;
- the details on the industry it is targeting for the acquisition.
SPACs seeking admission on the Swiss stock exchange are exempt from the financial track record requirement, and from publishing historical financial information.
The freely tradable securities must amount to >20% of outstanding shares and must have a market capitalization of > CHF 25m.**
* They apply to both equity SPACs and convertible-bond SPACs.
** For equity SPACs, these free float requirements apply to the shares issued at the IPO. For convertible-bond SPACs, these free float requirements only apply to the convertible bonds issued at the IPO.
SPACs are subject to the same reporting requirements as other listed companies on SIX Swiss Exchange.
- In addition to executives and board members, sponsors and founding investors of a SPAC must disclose any transaction in securities of the said company.
For the De-SPAC process a number of requirements need to be fulfilled to ensure that investors stay protected.
- The SPAC must prepare an information document about the target company and about the structure of the combined entity. The SPAC must publish this information in accordance with ad-hoc publicity requirements.
- A majority vote at a specially-convened investor meeting is necessary to execute the proposed acquisition(s) or merger(s).
- Opposing investors have the right to return their securities to the company and retrieve their share of the funds in the escrow account.
- The combined entity must request a transfer to one of the other regulatory standards.
- For convertible-bonds SPACs, the shares must fulfill the free-float requirements of the regulatory standard to which it is transferring.
- The combined entity is required to publish quarterly financial statements for a maximum of 2 years if the acquired operational company(ies) do not have audited annual financial statements dating back three years in accordance with a recognized accounting standard.
Benefits for Private Companies
SPACs offer an additional option to join the public market. For companies seeking to go public, the SPAC route distinguishes itself from the traditional IPO route as below:
The target company only negotiates with the SPAC’s management. This means that the target company doesn't have to go on roadshows to pitch the company to public investors before the IPO. It also means that there is a higher deal and price certainty once an agreement with a SPAC’s management is achieved.
Faster Time to Market
Once an agreement with a SPAC’s management is reached, the acquisition is submitted to a vote to the investors of the SPAC. The acquisition is executed, if a majority of investors vote in favor.
Locked-In Strategic Partners
The founders, sponsors, members of the board and management of a SPAC are typically experienced industry experts with large networks. The SPAC regulatory framework in Switzerland requires lock-up agreements for the SPAC’s founders, sponsors, members of the board and management that restrict their selling of shares for at least 6 months after an acquisition.