Special Purpose Acquisition Companies (SPACs)

• Published date: 23 September 2020
• Author: Yolande Meyvis,Laurens Engelen,Pieter-Jan Aerts,Celine Van Lierde
• Law Firm: Dentons

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...