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Apr 27, 2021

SPAC fever, a golden opportunity for the European market?

Víctor Artola (Director of the Corporate and M&A department) and Pablo Enrile, Partner of the same department in a new article for El Confidencial

The Director of the Corporate and M&A Department, Víctor Artola, and the Partner of the same Department, Pablo Enrile, have written a timely article in the most widely distributed digital newspaper in Spain, El Confidencial, on the new reality of SPACs.

The authors say that the fever of SPACs (Special Purpose Acquisition Companies) is spreading strongly in the European market, a 'new' type of investment that has beaten all forecasts in the United States during 2020 and which looks set to surpass all records throughout 2021. In the month of February alone, 90 SPACs and more than 32 billion dollars of investment were registered.

But according to Víctor Artola and Pablo Enrile, although this figure is at its peak in the US, for the European market it is something rather distant and experimental, although everything seems to indicate that this type of investment mechanism is here to stay.

So far, among the European markets, Amsterdam and Luxembourg have taken the lead, with SPACs already listed in the Netherlands and Germany. As far as Spain is concerned, everything seems to indicate that the success of this type of vehicle will depend to a large extent on how well it is received by the regulator and public authorities (CNMV).

Despite the sophistication of the name, SPACs are a relatively simple investment vehicle. They are vehicles created to raise investment capital that are listed for subsequent merger with an operating company with which to make the investment profitable.

The particularity of this figure is that the SPAC, when it goes public, does not have its own business, but is a shell company that specifies in its IPO that its purpose is to seek potential target companies. SPACs provide greater liquidity to investors and at the same time try to avoid the traditional IPO process of a private company, which can be more costly and time-consuming. Many have termed these types of figures as 'blank check companies', as the role played by the management team (Sponsors) is very significant, as it is not even necessary to know the type of company or sector in which the investment is going to be made.

The implementation of these investment figures represents a juicy opportunity in the venture capital market and it is precisely here where the European market may have a golden opportunity derived from the regulatory environment: we are talking about the existing regulation in the European Union (EU) on intra-EU mergers (mergers between companies from different European countries).

Víctor Artola and Pablo Enrile conclude in their article for El Confidencial that 'the lack of a specific regulation on extra-EU mergers (mergers where one of the companies is not from the EU) may increase scepticism among investors, who doubt the legal viability of these operations. However, this scepticism is partly unfounded, as Spanish commercial law expressly provides for this possibility (there are even precedents), although the procedure and execution times are not developed, which may discourage potential investors.”

The full article is available here

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