Friday, December 3

The CNMV finalizes the IPO of the SPACs

Investor interest in Special Purpose Acquisition Companies (SPACs) is growing and they have become alternative to IPOs traditional and private equity, increasing the chances of access to equity markets for companies with high growth potential.

They are companies that are created for the sole purpose of raising funds through an IPO, and using that money to acquire and merge with a private company.

Its attractiveness for investors in markets such as the United States, where they are registering record volumes – some 550 SPAC are listed on the stock market – has led to the CNMV to move tab and publish in your third quarter of the year report the supervision criteria That must be taken into account in the SPAC’s IPOs, as well as in their subsequent operation as listed companies.

Its objective is to provide these companies with greater legal certainty. As recognized Rodrigo Buenaventura, president of the National Securities Market Commission, “today, with Spanish regulations, SPACs are possible”, however, he believes that “it would be ideal to carry out some legal adjustments to further facilitate their fit”.

Before going public

The criteria published by the CNMV establish that, in order to go public, the SPACs must register a brochure, in which they should place “special emphasis” on informing about the risks associated with the sponsor’s conflicts of interest, their form of remuneration, their experience and the possible lock-up commitments assumed in order to limit for a period of time the sale of shares owned.

In addition, it will have to indicate the corporate governance of the SPAC, the dilution that the shareholders may experience as a result of the acquisition operation and the conversion into ordinary shares of the shares owned by the sponsor. As well as the exercise of warrants and the immobilization of the funds contributed by the shareholders in the IPO and the remuneration of the account in which said funds will be deposited and immobilized.

Report on the corporate resolutions and the majorities necessary for the acquisition of the target entity, on the form of exercise of the right of separation at the time the integration operation is approved, the term that the SPAC has for the identification and acquisition of the entity and the type of financial instruments to be issued by the SPAC are other requirements demanded of these companies.

To which they are added the financing needs that the SPAC could anticipate that will specify, with regard to the acquisition of the entity, the description of the sector or the type of companies that could be the object of acquisition and the risks associated with said sectors and companies.

Sufficient liquidity

Within the framework of the SPAC IPO, the CNMV establishes that it must ensure that the levels of liquidity and diffusion of the shares of society are sufficient.

In this sense, and due to the characteristics of the SPACs, it could be presumed that these levels are reached with at least 50 investors and 50 million euros of capitalization, although these parameters are not set in any standard, so, according to the report, “They may be modular.”

All this, “without prejudice to the need to comply with the legal requirement that at least 25 percent of the capital must be distributed among the public,” the document states.

After debut

After going public, the SPAC, like any listed company, must strictly observe information obligations that emanate from the securities market regulations and, in particular, from the regulations on transparency and market abuse. To do this, you must publish the privileged information that is in your possession.

In this context, the information that must be published in relation to the target entity once it announces the agreement for its acquisition is of particular importance.

This information should be “as complete as possible“so that the shareholders of the SPAC can decide whether or not they agree with the operation and exercise their right of separation or not, and so that the trading price of the shares of the SPAC can be correctly formed.

The CNMV’s approach will be to ensure that the SPACs publish all privileged information, avoiding trading suspensions as much as possible.

Information when merging

The information that the SPAC must publish at the time of its merger with the target entity is also essential.

In this sense, the CNMV indicates that the SPAC “must prepare a brochure in accordance with the provisions of Regulation (EU) 2017/1129 of the European Parliament and of the Council, of June 14, 2017, unless any of the exceptions contemplated in the aforementioned regulation ”.

If so, the CNMV will demand the preparation of a brochure so that investors can have a complete information on the acquired company, so that they have the same information as if the process had been a traditional IPO.

Modification of the draft law

The report highlights that draft bill of the Securities Market and Investment Services Law includes an amendment to the Capital Companies Law that regulates listed public limited companies, in order to contemplate the particularities of the regime applicable to SPACs.

The text defines what is understood by SPAC, refers to the immobilization of the funds contributed by investors in the framework of the public offering of securities carried out by the SPAC for their IPO, and establishes the reimbursement mechanisms for shareholders when they are announce the acquisition operation of the target entity.

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