Belgian reg' launches consultation on future Spacs framework
The Belgian financial market authority FSMA on Monday initiated a public consultation on special purpose acquisition companies (Spacs). Spacs are shell companies raising capital then listing on a stock exchange to further finance a merger or an acquisition.
FSMA is proposing to introduce minimum standards for Spacs, regarding the structure of Spacs, information disclosure and the arrangements whereby investors may withdraw from the Spac. The watchdog is also looking at the extent to which Spacs are suited, and should thus be accessible, to retail investors. The consultation will last until 31 May 2021.
To date, no Spac has been listed on Brussels Stock Exchange whilst other stock exchanges including Frankfurt, Paris, Amsterdam, Stockholm have welcomed their first Spac IPOs in recent months. These structures, which an alternative way to the traditional initial public offering (IPO), have been gaining ground since 2020, in particular in the United States.
“In January and February 2021 alone, 50 completed Spac merger deals were registered in the US worth a total of around $140bn [Goldman Sachs research, Ed.]. However, the phenomenon is not limited to the US. Last year, more than 300 Spac IPO transactions were concluded worldwide for an average of $330m per transaction [according to Bloomberg, Ed.],” noted FSMA in its consultation document.
The regulator has drawn up four main measures on Spacs which it said may form standards that will “inevitably evolve as FSMA gains further insights and in response to possible initiatives at European and/or international level.”
Reserved to qualified investors
In the watchdog’s view, the governance structure of a Spac and the rules governing decision-making on business combinations must provide investors maximum protection against conflicts of interest. The FSMA takes the view that the investment decision on a business combination is to be taken by the general meeting of shareholders, and not by the Spac’s board of directors.
“Taking into account the various classes of shares, the general meeting should be asked to take a decision by organising votes in each category, with, at minimum, a quorum of 50% and a majority of 50% plus one vote, on the understanding that if the nature of the proposed transaction requires a more restrictive quorum or majority, these be applied to each class of shares. It is also important to avoid that the founders who have acquired shares on the market be able to participate in the vote in the other category of shareholders and to influence their vote.”
Furthermore, FSMA believes the Spac’s redemption option must offer investors who choose to retain their shares maximum protection against dilution. As to the prospectus, the Belgian watchdog said the Spac prospectus must comprise various dilution scenarios and indicate what level of return is needed to neutralise the investor’s dilution.
Lastly, FSMA considers that, “in light of their complexity, Spacs should be traded on a group that is reserved for professionals.” The regulator added: “Intermediaries should take into consideration what this means for the application of conduct of business rules to transactions carried out on the market. By the same token, the FSMA takes the view that the offer of units should be reserved for qualified investors within the meaning of Article 2 of the Prospectus Regulation.”
Spain also awaits its first Spacs
The FSMA’s public consultation is launched at a time when other countries are looking to introduce a dose of legislation into the Spac regime. The Spanish Ministry of the Economy, for example, has initiated a comprehensive reform of its securities market law. A draft law in which the Spanish government proposes an overhaul of the company law to facilitate the IPO of Spac. It also intends to guarantee investor protection vis-à-vis Spacs, in particular reimbursement to investors.
In an interview to the Spanish daily newspaper Cinco Días at the end of April, Mariano Colmenar-Gotor, head of equity capital markets at JPMorgan in Spain, Portugal, Russia and the Netherlands, said that Spain was an interesting market for Spacs. “There are as many sponsors interested in the construction of a Spac as there are promoters and international sponsors who have identified Spanish companies which are attractive targets for their Spac. Traditionally, the entire region of southern Europe (Spain, Italy and Portugal) has a network of family businesses which, although they are already of a significant size, also have the potential for internationalisation and very strong growth. attractive for a Spac,” he explained.
Colmenar-Gotor felt, however, that there were still several elements to be defined before the first Spanish Spac was listed. In particular, the question of ensuring the tax treatment in Spain of the merger of a company with a Spac is equivalent to that with any other company.
JPMorgan's head of equity capital markets in Iberia as well as in the Netherlands stressed that a large group of Spanish sponsors “considers that the listing of Spac in Spain will be a differential element in a possible merger with Spanish companies.”
According to Colmenar-Gotor, the majority of Spacs on which his team is currently focusing have teams with a pan-European vocation which target markets such as the Netherlands or Germany for their future listing. His team expects to see around 40 Spacs listed on the Amsterdam Stock Exchange this year.