SPAC stands for “special purpose acquisition company”, also known as a “blank cheque company”. They originated in the US, where they have since become a hugely popular investment product. In 2021 the SPAC really began to make its mark in Europe as well, first taking hold in vibrant financial centres like Luxembourg.
A SPAC is a listed vehicle with the objective of acquiring, through a so-called “business combination”, one privately held company or group (a target generally selected based on an investment strategy focused on a certain sector and region). The business combination allows the target company to go public without passing through the traditional IPO process. If no suitable target can be found within two to three years, the SPAC must be liquidated.
The shareholders vote on the specific business combination, which is implemented in a process commonly referred to as “de-SPACing” and can take the form of merger(s), sale, contribution in kind or other means.
Typically, the SPAC issues two types of instruments: shares and warrants. The shares are split into public shares (listed and held by investors) and sponsor shares (not listed, but convertible into public shares under certain conditions). Often, 80% of the units go to public shareholders and 20% to the sponsor(s). In addition, the SPAC will normally issue sponsor warrants. The subscription price of the sponsor shares and sponsor warrants covers the cost of the de-SPACing process.
Sponsors are usually HNWIs (former CEOs of MNCs), but can also be investment firms, hedge funds or PE funds. The funds invested by the public shareholders are held in an escrow account, with the goal of being refundable to the investors at 100% if (i) no target is found within the two to three-year de-SPACing period, and/or (ii) the investors decide at the time of the business combination not to invest in the target. De-SPACing transactions are often coupled with additional issuances of rights through rounds of private (PIPE) fundraising to enable the SPAC to reach a larger acquisition target.
Always on the lookout for wise innovation, Arendt began early on to offer legal advisory services helping SPAC sponsors achieve their goals. The firm now has a solid track record with various SPAC and de-SPAC transactions (examples above).
We assist sponsors with the listing on different stock exchanges including Frankfurt, Amsterdam, New York and NASDAQ, which each present their own specificities. Arendt thus has knowledge and in-depth experience of all of the processes that contribute to the efficient creation of a SPAC as well as the know-how to assist with the subsequent de-SPACing process.
Beyond this, SPACs require significant expertise in a cluster of fields already well represented at Arendt:
Corporate Law, Mergers & Acquisitions
- governance matters
- coordination with dedicated service providers and Luxembourg authorities
- issuance of different categories and types of shares and warrants
- prospectus review and drafting
- mergers and demergers
- share and asset acquisition
- due diligence
- analysis of SPAC eligibility for alternative investment fund status under the AIFMD and support with all related questions
- assistance with review of SPAC documentation, in particular the prospectus, to facilitate qualification as an alternative investment fund