Swedish SPACs

• Published date: 28 January 2021
• Subject Matter: Corporate/Commercial Law, M&A/Private Equity, Corporate and Company Law, Shareholders
• Law Firm: Torngren Magnell
• Author: Mr Johan Wigh, Sebastian Hellesnes and Jacob Elovsson Hultin

1 Introduction

1.1 Listings of Special Purpose Acquisition Companies ("SPACs") have been popular in the US for a long time, including in the last decade. Despite high activity in the Swedish IPO market, with record breaking numbers of transaction and great demand for new IPOs (also for companies that are in early phase and not yet profitable), SPACs have yet to be introduced in Sweden. We have, however, noted an increased interest from clients around the possibility to launch a Swedish SPAC and in this memorandum, we outline the basic concept of a SPAC and describe key issues/hurdles to be considered in relation to Swedish SPAC listing projects.

1.2 A SPAC is a shell company formed for the purpose of raising funds in an initial public offering ("IPO"), and subsequently, acquiring another operating company or business (the "Target"). Usually, the offering consists of redeemable shares, as well as warrants. If the investor decides to redeem its sharesin the SPAC, the investor gets back its initial investment together with an interest component. If the investor wishes to remain in the SPAC upon the Target being identified, the investor lets the redemption right lapse. The warrants give the investor additional upside if the SPAC is successful.

1.3 The Target is normally not identified at the time of the IPO (which is why SPACs sometimes are referred to as "blank check" companies¹ ). However, a key driver of the SPAC is its management team, which often has substantial expertise within a specific industry or sector where the Target is to be identified and later acquired.² The management team is also normally invested in the SPAC, which is viewed as positive by investors as the management team has 'skin in the game'. Participation by management is important to attract highly qualified managers to the SPAC.

1.4 Should no deal be made within a certain time following the IPO, typically 24 months, the equity of the SPAC is returned to the investors, and the SPAC delisted.³ Before acquiring the Target, the SPAC seeks approval from the investors at a general meeting of the shareholders. An investor who votes against the proposed acquisition may choose to have its shares redeemed. ⁴

1.5 Some key reasons for SPAC listings becoming popular in the US (as alternative to traditional IPOs) is that the traditional IPOs are believed to be slower and more costly.⁵ Further, SPAC listing offers efficient access to capital and the ability to build value for its founders (e.g., the...