SPAC – an alternative to a traditional Initial Public Offering (IPO) for startups
SPACs have become increasingly popular in recent years. A Special Purpose Acquisition Company (SPAC) is an investment vehicle that allows unlisted companies, especially startups, to go public. The SPAC is an empty shell company in the form of a corporation with no operating business of its own, established to raise investor funds in an IPO and then identify and acquire a suitable target company within a specified period of time, typically 12 – 24 months after the IPO. SPACs are regularly founded by experienced investment managers, the so-called sponsors. They use the capital raised to invest in high-growth targets.
The capital collected through the issuance of shares is usually deposited in an escrow account and may regularly only be used in accordance with the cases outlined in the prospectus of the respective SPAC. The shareholders decide by a majority of regularly at least 50 percent on the use of the trust assets and thus also on the business combination proposed by the management. If the investors do not approve the business combination, they can usually return the shares of the SPAC at the issue price.
Some advantages over a traditional IPO
An IPO using a SPAC usually takes 3 – 4 months to list on the stock exchange and is therefore less time-consuming than a traditional IPO. In addition, with a SPAC there is greater flexibility with regard to contract negotiations. The target company can also benefit from the expertise of the sponsors. However, the high dependence on management can also prove to be a disadvantage of the SPAC. Furthermore, it must be taken into account that investors invest their money in a company they do not yet know.
Development of SPACs in Germany
In Germany, the first SPAC was listed in 2010. Since then, there have been only a handful of other SPACs. A boom of SPACs like in the U.S. has so far failed to materialize. However, German capital market law is sufficiently flexible for SPACs listed in Germany. The obstacles to SPAC structures that exist in German stock corporation law can be circumvented by using foreign legal forms, as these offer more flexibility.
VT5 first SPAC on the Swiss stock exchange
VT5, the first SPAC, was listed on the SIX Swiss Exchange in December 2021. An adjustment to the SIX framework now allows SPACs to be listed in Switzerland. In Switzerland, however, unlike Germany, only public limited companies can be listed under Swiss law.
SPACs can be interesting from both an investor’s and entrepreneur’s point of view and have been experiencing a major boom in recent years, especially in the USA, and are seen as a stock market trend. Whether such a trend will also occur in Switzerland remains to be seen and depends not only on the market situation but also on players. SPACs are part of our area of expertise and we will be happy to answer your questions about them.