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2021 九月 09

Update: SPAC Momentum Continues in Europe with Further Listings in Amsterdam and Frankfurt and Reform in London

Since our publication in March (US SPAC Boom Spreads to Europe), the SPAC market in Europe has continued to grow, with nearly 30 SPACs listed so far in 2021. Euronext Amsterdam has been taking the lead with over 40% of the European SPAC listings, along with three on the Frankfurt Stock Exchange. In London, the Financial Conduct Authority has published its final policy statement in relation to the SPAC regime, which came into force on 10 August and looks set to encourage SPAC listings in London, with several in preparation and more being discussed. 

We have updated the table which we published in March to show current trends in the features of SPACs that have listed in Amsterdam and Frankfurt, with a comparison to the typical SPAC structure in the United States. We have also included updates for how the structure has been used for London SPAC listings historically and where the requirements set out in the FCA’s recent policy statement impact that structure. We expect London market practice to change going forward to largely mirror that in other jurisdictions.

Among the four jurisdictions, Frankfurt and the US are the most similar. For a Frankfurt-listed SPAC, entities organized in Luxembourg or The Netherlands have recently been used to resemble the US SPAC structure. In addition, the Frankfurt Stock Exchange has introduced listing rules specifically for SPACs to make it easier for them to list in Frankfurt.

The Amsterdam SPACs frequently follow the same basic outline as the US and Frankfurt SPACs, sometimes with differences as described below. The more recent listings in Amsterdam are now increasingly making use of the flexibility provided under Dutch law to more closely mirror the US model as compared to the terms adopted in the first three Amsterdam listings. While Dutch law does not have rules that apply specifically to SPACs only, Dutch law allows even further flexibility to entities formed as a BV.¹

We discuss below key differences among the different listing jurisdictions. We have also included the features that a UK SPAC will need to have in order for the FCA to (generally) be satisfied that suspension of the SPAC’s share listing is not required on announcement of a de-SPAC transaction.

In addition to the listing jurisdictions, the jurisdiction in which European SPAC vehicles are incorporated – which is not necessarily the same jurisdiction in which the SPAC is listed – will impact the availability of the typical features of US SPACs. We discuss below the common incorporation jurisdictions for SPACs listing on the European exchanges and, in the Appendix, we have included a comparison of the relative advantages of the most common jurisdictions in which SPACs are incorporated. 

Shareholder Approval

• United States: In the United States, SPAC business combinations generally require the approval of a majority of the votes cast, and the sponsor may vote its shares. 
• Frankfurt (assuming a Luxembourg-organized entity):  In the recent SPAC listing in Frankfurt, the business combination requires the approval of a majority of the votes validly cast, and the sponsors/founders may vote their shares.  The listing rules of the Frankfurt Stock Exchange permit any structure where assets are held in trust and a 50% shareholder majority determines the use of such assets, and the sponsors/founders are permitted to vote their shares. 
• Amsterdam: In SPAC listings in Amsterdam, the business combination requires approval of either (i) 70% of the votes cast, provided a quorum of (at least) 33%-50% of the shares outstanding is represented, or (ii) approval of more than 50% of the votes cast, typically without any quorum requirements. As a matter of Dutch law, for NVs the business combination only requires the approval of more than 50% of the votes cast, and for BVs there is no explicit rule specifying a percentage vote requirement. Regarding the voting of founder shares, in the first three listings in Amsterdam SPAC sponsors were not permitted to vote their founder shares, but Dutch law does not prohibit SPAC sponsors from voting their founder shares, and in subsequent listings SPAC sponsors have been permitted to vote. 
• London: Historically SPACs listed on London’s standard listing segment have not required shareholder approval for an acquisition. This will now be required for a SPAC to benefit from the FCA’s new approach. In addition, the acquisition will require board approval, excluding from the board discussion and vote any director that is, or has an associate that is, a director of the target or its subsidiaries, or has a conflict of interest in relation to the target or its subsidiaries.

Voting/Redeeming

• United States: In the United States, shareholders can redeem whether or not they vote for or against the business combination (and whether or not they vote at all). 
• Frankfurt: As in the United States, shareholders can redeem their shares irrespective of their participation and vote at a shareholders’ meeting for the purpose of approving the business combination (and whether or not they vote at all).
• Amsterdam: In SPAC listings in Amsterdam earlier this year, a shareholder of a SPAC was permitted to redeem its shares only if the shareholder voted against the business combination.  However, in many of the more recent Amsterdam listings,  shareholders can redeem whether or not they vote for or against the business combination.
• London: As in the United States, there is flexibility to allow for shareholders to have a complete redemption right subject to the SPAC, if it is incorporated in the UK, having sufficient distributable reserves to fund redemptions. English company law provides a straightforward process to generate such reserves through a reduction of capital. To benefit from the FCA’s new approach, SPACs will need to include this redemption option feature.

Shareholder Redemptions

• United States: In the United States, up to 100% of the SPAC’s shares can be redeemed by shareholders in connection with the business combination (so long as the SPAC at all times has minimum net tangible assets of at least $5 million). 
• Frankfurt: Similar to the United States, in the recent SPAC listing in Frankfurt, up to 100% of the SPAC’s public shares can be redeemed by shareholders upon the completion of the business combination (subject to the availability of amounts on deposit in the escrow account and sufficient distributable reserves).
• Amsterdam: Under Dutch law, a listed NV cannot redeem more than 50% of its shares.  As a result, in some SPAC listings, no more than 30% or 49% of the shares can be redeemed, as in these listings only shareholders voting against the business combination are eligible to have their shares redeemed, and the business combination requires the approval of 70% or 51% of the votes cast, respectively. However, if a SPAC is listed as a BV, the 50% cap on redemptions does not apply under Dutch law and the company can redeem an amount of shares up to the amount of its statutory reserves. In more recent Amsterdam listings, voting against the business combination does not preclude redemption, and SPACs listed as BVs are therefore able to redeem a number of shares up to the amount of their statutory reserves.
• London: As noted above, there is flexibility to follow the typical US structure in this regard, which will be required in order to benefit from the FCA’s new approach to suspension.

Sponsor Promote

• United States: In the United States, the sponsor promote is typically equal to 20% of the SPAC’s shares outstanding, although some sponsors have taken a lower percentage. 
• Frankfurt: In the recent SPAC listing in Frankfurt, the sponsor promote was equal to 20% of the SPAC’s shares outstanding.
• Amsterdam: In the most recent SPAC listings in Amsterdam, the sponsor promote was 20% of the SPAC’s shares outstanding.  In previous listings, sponsors acquired approximately 8% - 30% of the SPAC’s shares.  There is an inherent limit on sponsor ownership of 30% for SPACs listed as NV’s due to the application of mandatory bid procedures which apply at 30% ownership.  Pursuant to Dutch/EU law, any shareholder who directly or indirectly obtains 30% of the shares in a Dutch listed NV is required to make a public offer for the remaining outstanding shares (unless waived by a shareholders’ resolution with 90% approval of the votes cast by shareholders other than the acquiror). If the SPAC is listed as a BV, however, this 30% cap does not apply.
• London: Sponsors in the past have commonly subscribed for a class of founder preferred shares, entitling them to an annual dividend amount (payable in shares or cash) subject to a share value hurdle being met.  The economics of these terms can be flexible. Proposed UK SPACs following the change to the FCA’s approach are likely, however, to structure the sponsor promote as an entitlement to further listed shares in the SPAC, mirroring the market practice in the United States and in recent Dutch and German SPAC listings.

Warrants

• United States: In the United States, all of the warrants are issued to shareholders when the IPO closes as part of the unit sold in the IPO. 
• Frankfurt: Mirroring the US practice, in the recent SPAC listing in Frankfurt, all of the warrants were issued to shareholders at closing of the IPO.
• Amsterdam: In the first three SPAC listings in Amsterdam, half of the warrants were issued to shareholders when the IPO closed, and the other half were to be issued when the de-SPAC business combination closes (to whomever then owns the shares sold in the IPO). However, the recent listed SPACs mirror the customary US practice by issuing all warrants (subject to fractions) to shareholders at the closing of the IPO.
• London: Historically ordinary shares were issued with 1/3 matching warrants to all shareholders to purchase shares at $11.50 (or £11.50) each. This structure is likely to continue going forward, since it mirrors practice in the United States – if possible, with stapled units being issued at Admission, consisting of one share and one-third of a warrant, with separation taking place after the stabilisation period. The ability to do this in compliance with the Listing Rules is currently under discussion with the FCA. Also as in the U.S., the warrants may be redeemable at very low prices if the SPAC’s listed share price reaches pre-determined levels.

Underwriting Fee

• United States: The typical underwriting fee for a SPAC in the US is 5.5% of the IPO proceeds, with 2% paid in cash at the closing of the IPO and 3.5% paid when the business combination closes. 
• Frankfurt: In the recent SPAC listing in Frankfurt, the underwriting fee for the SPAC amounted to 4% of the IPO proceeds, with 2% paid in cash at the closing of the IPO and 2% paid when the business combination closes. Furthermore, a deferred discretionary fee of up to 1.5% upon closing of the business combination was agreed.
• Amsterdam: In Amsterdam, the typical underwriting fee for a SPAC is between 3.25% - 5.5%, with 1.5% - 2% payable in cash at the closing of the IPO and 1.75% - 3.5% payable when the business combination closes.
• London: A typical underwriting fee is around 2-3% of the proceeds generated in the IPO, excluding shares subscribed for by the sponsor, payable on completion of the IPO. There is flexibility to include separate fees on completion of the de-SPAC transaction. To benefit from the FCA’s new approach, the SPAC must ring-fence proceeds raised in the IPO to either fund an acquisition, or to be returned to shareholders (in the event of investors redeeming shares or if a SPAC winds-up), less any amounts specifically agreed to be used for a SPAC’s running costs. These running costs may include deferred underwriting fees.

Target Size 

• United States: In the United States, the target or targets must have an aggregate fair market value equal to at least 80% of the value of the assets held in the trust account at the time of signing a definitive agreement.  SPACs may acquire more than one target.
• Frankfurt: Frankfurt does not have such an 80% rule.  Frankfurt listed SPACs are generally free in their choice of target and can also choose to acquire multiple targets. For the purpose of providing guidance to investors, the recently listed Frankfurt SPAC has provided a non-exhaustive list of guidelines which apply to the SPAC’s expected selection and evaluation of prospective target companies.
• Amsterdam: Similar to Frankfurt, in Amsterdam there is no 80% rule.  Dutch SPACs are free in their choice of target and can choose to acquire multiple targets.  For the purpose of providing guidance to investors, the listed Dutch SPACs have provided a non-exhaustive list of guidelines which apply to the SPAC’s expected selection and evaluation of prospective target companies.
• London: There is no target size restriction. To benefit from the FCA’s new approach, the SPAC must publish a ‘fair and reasonable’ statement if any of the SPAC’s directors have a conflict of interest in relation to the target or any of its subsidiaries, and to reflect advice from an appropriately qualified and independent adviser.

Time Limit

• United States: Most deals require the SPAC to consummate its acquisition within 24 months of the IPO, though sometimes the time limit is shorter (12 months, 18 months or 21 months). Some deals provide for an automatic extension to 27 or 30 months if an agreement for a business combination is in place within 24 months.
• Frankfurt: As in the US, 24 months is most typical. Some deals will provide an automatic extension to 27 months if an agreement for a business combination is in place within 24 months.
• Amsterdam: As in the US, 24 months is most typical. Some deals provide for an extension to 30 months subject to receipt of shareholder approval.
• London: In order to benefit from the FCA’s new approach, there must be a time limit to find and acquire a target within two years of admission to listing, subject to extension by 12 months with shareholder approval. This two / three-year operating period can be extended by six months without a shareholder vote in certain limited circumstances where a transaction is well-advanced (for example, where time is needed to finalise the shareholder approval process or to complete a transaction that shareholders have approved).

It is important to consider whether local regulations, other than securities laws, apply to any proposed SPAC listing, particularly since a breach of some of these regulations can carry criminal sanctions. In Europe this will include the Alternative Investment Fund Managers Directive. Factors in the structuring of the transaction will be relevant to that regulatory analysis, including whether the SPAC has a defined investment policy, whether the SPAC pursues a general commercial or industrial purpose but also how regulators ultimately qualify SPACs. No individual or harmonized approach or guidance has been provided by any European regulator although, in the UK, the FCA has noted in its recent policy statement that it is not its intention that the changes to their approach and the criteria for them to apply should bring a SPAC within the scope of the UK Alternative Investment Fund rules.

The European Securities and Markets Authority (ESMA), the EU’s securities markets regulator, issued a public statement on 15 July 2021 on the prospectus disclosure and investor protection issues raised by SPACs and in particular on how issuers should satisfy the specific disclosure requirements of the EU Prospectus Regulation to enhance the comprehensibility and comparability of SPAC prospectuses. ESMA specifically addressed the level of disclosure which SPACs should provide in their IPO listing prospectus regarding the future business combination. According to ESMA, the SPAC’s IPO listing prospectuses should contain a detailed description of the disclosure that the issuer will provide in the future for the shareholders’ meeting about the target company and the envisaged business combination, especially where it is possible that no approved prospectus will be required in connection with the future business combination. This disclosure will enable investors to assess whether they are comfortable with the level of disclosure that will be provided in relation to the business combination in the future. ESMA expects the level of disclosure in relation to the business combination to be similar to that in an approved prospectus. The intention of ESMA’s guidance is to help national authorities in Europe take a coordinated approach to the scrutiny of SPAC prospectuses and to support investors’ analyses of these transactions. In addition, ESMA has noted its view that SPAC transactions may not be appropriate investments for all investors due to risks relating to dilution, conflicts of interests in relation to sponsors’ incentives and the uncertainty as to the identification and evaluation of the target company.²

Amsterdam has emerged as the European centre for SPAC listings so far in 2021; it remains an open question whether this will remain the case or if other European financial centres experience increased activity. The Frankfurt Stock Exchange and London Stock Exchange have now both adopted SPAC-specific listing rules to enable flexible listing.

Authors 

Mark Austin, Kate Cooper, Tom Godwin (UK)

Christophe Gleske, Stephan Pachinger, Markus Benzing, Christina Zapf (Germany)

Dirk-Jan Smit and Lasse de Vooght (Amsterdam)

Michael Levitt, Paul Tiger, Sebastian Fain, Valerie Jacob, Ethan Klingsberg, Andrea Basham, Pam Marcogliese (NY)

Footnotes

1. Dutch companies can be formed as either NVs (which is typically used for listed companies) or BVs (which is typically used for privately held companies). BV law is even more flexible than NV law. SPACs are listed companies but can be formed as BVs.  

2. The German Federal Financial Supervisory Authority (BaFin) also published a general warning on shares issued by SPACs, reiterating that SPACs do not have an operating business and that there are significant risks associated with SPACs, in particular due to the difficulties in assessing a SPAC’s business model.