SPACs: A New Financial Instrument Available In Mexico

During 2017 and 2018 the Mexican Stock Exchange witnessed the placement of securities issued by the first two Mexican special purpose acquisition companies (SPACs). Alberto Alvarez and Moisés Gutiérrez of Chevez, Ruiz, Zamarripa y Cia., address some aspects of the operation of said companies, as well as the tax implications that could arise for investors as a result of participating in a Mexican SPAC.

What is a SPAC?

In accordance with the U.S. Security and Exchange Commission, a SPAC is a company specifically created to pool funds in order to finance a merger or acquisition opportunity within a set timeframe, of which identification is usually pending.

SPACs are vehicles that are very common in the American and Canadian markets. In the US, for example, there have been 291 SPACs listed since 2003, 155 of which have successfully completed an acquisition.

Such companies raise funds by means of an initial public offering (IPO) through an authorised stock exchange. Units are then issued by the SPAC. These units generally consist of shares of common stock and warrants to purchase common stock in the future. Each warrant may be exercisable for a full share of common stock or for fractions of such common stock at a price set in the corresponding prospectus.

The SPAC is a blank check company at the time of the IPO, since it does not have any type of business operation nor assets. Investors participating in the IPO basically rely on the experience and track record of the SPAC's management team, who should have enough knowledge to find an attractive acquisition target and, at a later stage, complete an acquisition through a business combination that could be a merger, share or asset purchase, reorganisation or any other type of transaction.

The industry sectors where the SPAC may invest are typically listed in the prospectus and depend on the background and skills of the management team.

While the management team is searching for the acquisition target, the proceeds from the IPO issued by the SPAC are deposited into a trust or escrow account. Once the account is funded, the management team normally has up to 24 months to identify and acquire an operating business.

If the SPAC does not complete an acquisition within such timeframe, the vehicle must be liquidated and the proceeds obtained through the IPO should be returned to the investors or shareholders.

SPACs in Mexico

As opposed to other jurisdictions, Mexico does not have a specific regulation for all the aspects concerning the public listing...