‘SPACs’: new acronym, product for the Channel Islands

Back in November, the Channel Islands Securities Exchange  unveiled a new listing option, but one that has had considerable success on other stock markets: the so-called special purpose acquisition company, or SPAC.

While Jersey and Guernsey are no strangers to SPACs, historically these listing entities have utilised the Channels Islands as a jurisdiction in which to incorporate prior to listing on a major stock market, such as the London Stock Exchange or the LSE’s Alternative Investment Market (AIM).

Now, though, we at Ogier and others in this space see this potential to be able to list SPACs on the CISE as a potentially interesting opportunity for SPAC sponsors – particular smaller sponsors, for whom the cost of listing on a market such as the LSE may represent a deterrent, impeding their ability to actually get their SPAC off the ground.

With the Channel Islands’ expertise in the private equity sector generally, the ability now to list SPACs on CISE is a useful addition to the islands’ suite of products in this sector.

For the uninitiated, a SPAC is used to raise money via an initial public offering (IPO), in order to search the market for a specific acquisition, in effect being a listed “cash shell”. SPACs facilitate the participation of investors (usually ultra-high net worth individuals and hedge funds) in private equity investment opportunities.

Following the financial crisis in 2008, the numbers of SPACs seeking to raise money from investors declined significantly, although in recent years, equity capital markets have seen a resurgence in the numbers and size of SPACs coming to market.

A number of factors have assisted the resurgence of SPACs, including market conditions for fund-raising in the equity capital markets; a return in confidence among investors to deploy their capital for investments; and investors keen to gain exposure to private equity investment opportunities for their investment portfolios.

Noteworthy recent SPACs

Among noteworthy recent SPACs, Texas Pacific Group recently raised US$460m on the IPO of Pace Holdings Corp on NASDAQ; Wilber Ross raised US$460m on the IPO of WL Ross Holding Corp on NASDAQ; Nicolas Berggruen’s £900m SPAC, Justice Holdings Ltd, listed in London and subsequently acquired 29% of Burger King Worldwide, Inc.

Then there was Bob Diamond’s US$325m SPAC, Atlas Mara Co-Nvest Ltd, which listed in London and subsequently acquired banking interests in Africa.  Nomad Holdings Ltd raised US$500m on its IPO in London, and subsequently acquired Iglo Food Holdings Ltd.

One of key attractions for investors investing in SPACs is their listed company status. Once listed, a SPAC’s shares will be freely transferable and liquid, enabling investors to exit their investment by selling their shares in the market.

Another attraction is the “money back” feature of SPACs, which provides an important protection for shareholders – and for some investors, particularly hedge funds, this is a clear “win-win” feature.

These two features provide investments in SPACs with considerably more liquidity than an investment into a traditional private equity fund.

For promoters and sponsors, using a SPAC has a number of advantages over other forms of private equity investment vehicles. For one thing, the range of investors able to invest in a listed SPAC will likely be much greater than that available to private equity or other fund structures.

Another advantage is the ability of SPACs to offer sellers of a target business shares in a listed company, as part of any consideration package.

Lower costs

While SPACs sometimes resemble investment fund structures, the costs associated with establishing and maintaining a SPAC structure are generally lower than those applicable to establishing and maintaining a formal private equity fund structure.

And, aside from needing to comply with the rules of the stock exchange upon which its shares are listed, there is the added benefit of the SPAC itself not needing to be regulated as a fund.

While at the time of this writing the CISE has yet to see its first SPAC come to market, this can only be a matter of time.

To read International Investment’s report on CISE’s announcement in November that it was now to be possible for SPACs to be listed on the Channel Islands’ exchange, click here.

Simon Schilder, (pictured above), is a partner with Ogier Group, based in its Jersey office, where he practices both Jersey and BVI law.  His practice covers investment funds, cross border and multi-jurisdictional mergers and acquisitions, as well as corporate finance, equity capital markets (including special purpose acquisition companies), and joint ventures.

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