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Olivier Thébault and Mia Dassas : "Investing in a SPAC is risky"

Olivier Thébault, partner at Allen & Overy and Mia Dassas, counsel at Allen & Overy, explains how PSPCs work, their advantages and disadvantages and the strong attraction of investors for this type of vehicle ...

Article also available in : English EN | français FR

Next-Finance : What is a SPAC ? Can you share us some figures about SPAC?

Olivier Thébault and Mia Dassas : SPAC are not legally defined. These are vehicles designed to be listed on the stock market in order to raise funds to finance one or more acquisitions to be identified. Two SPAC have been set up in France, less than 10 in the Netherlands and 247 in the United States in 2020 only.

How does a SPAC work?

Sponsors create SPAC. The amount raised as part of an IPO is used to carry out an investment strategy. Investors subscribe for shares to which an accretive financial instrument is attached, the terms of which are set at the time of the IPO and exercisable in the event of acquisitions (generally a BSA / share warrants). SPAC must have identified and completed one or more acquisitions within two years. Acquisitions are approved by the board of directors or shareholders. Post-acquisition, the SPAC becomes a classic listed company. This is called the de-SPACing process.

What are a SPAC’s advantages / disadvantages ?

For the issuer: the speed of quotation, the amount of subscriptions higher than in a traditional quotation and many growth markets opportunities to take advantage of.

For investors: to take part in an investment strategy while benefiting from protection mechanisms (decision-making process, repayment of the initial investment in the absence of acquisition within 2 years, receiver).

Investing in a SPAC is risky and information available on SPAC is limited. At the date of the investment, the targets are unknown. Besides, investors may have little or no control over acquisitions. Finally, the stakeholders, including financial institutions, may be exposed to conflict of interest risks when the SPAC quotation or acquisitions are made.

SPAC are generally dedicated for qualified investors, as in France thanks to the professional compartment of Euronext regulated market.

At the date of the investment, the targets are unknown. Besides, investors may have little or no control over acquisitions. Finally, the stakeholders, including financial institutions, may be exposed to conflict of interest risks when the SPAC quotation or acquisitions are made...
Olivier Thébault, partner at Allen & Overy and Mia Dassas, counsel at Allen & Overy

Which actors mainly use SPAC ?

Some SPAC are created by sponsors known to investors (for example Xavier Niel and Matthieu Pigasse in France). Other projects are carried out by investment funds or banks (as in the United States or Amsterdam). The United States also sees the emergence of the role of "adviser" of SPAC, or even of sponsor endorsed by personalities known to the general public (such as Serena Williams or Jay-Z).

How can we currently explain investors’ strong attraction for this type of vehicle?

Investors expect high gains over a limited time horizon. The identity and the experience of the sponsors are also determining factors. The funds raised are invested and generate interest. If no acquisition is made on time, the initial investment is refunded.

Why is the success of SPAC more important in the US than in Europe or Asia?

SPAC developed in the United States in the 1990s, taking advantage of a specific regulatory framework. Cultural differences also play an important role to explain this current gap. Finally, SPAC can respond to market constraints, especially in a context of high volatility.

RF , April 27

Article also available in : English EN | français FR

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