Following what was initially a US trend, special purpose acquisition companies (SPACs) have gained momentum in Europe and lately also in the Nordics. For companies, SPACs represent an alternative method for raising capital in a supposedly more straightforward process with fewer regulatory requirements than a traditional IPO. For investors, SPACs represent an investment opportunity that may not have been at their reach earlier.
SPACs offer a new asset class with the opportunity to invest in pre-IPO companies through the SPAC platform. For retail investors who have historically not been able to invest in private companies this can be particularly attractive. Further, for such non-institutional investors the opportunity of benefiting from the expertise of the SPAC sponsors with aligned interests, resembling the relationship between private equity sponsors and institutional investors, can be appealing.
SPACs thrive on the merits of their sponsor. Although we are well familiarised with the concept of “past performance not guaranteeing future results”, SPACs with reputable sponsors attract strong attention from investors.
Without doubt, investing in a SPAC may appear risky, as investors will be putting in their money into a blank check shell company relying on the expertise of the sponsors and their ability to seek an attractive target for the SPAC.
One may argue for or against SPACs, but it seems that they are here to stay. For institutional investors SPACs may represent another asset class alongside the existing ones, but for retail investors especially they offer something new.
SPACs may take a wide variety of forms and, without doubt, keep evolving like any new concept. Besides functioning as an acquisition company in a domestic transaction, SPACs may be used e.g. as a platform for cross-border acquisitions, for funding venture activities, or as an exit route for private equity owners. Further, the market is already addressing some of the potential challenges associated with SPAC investments, e.g. in the form of SPAC ETFs that aim at mitigating the pop or flop risk of stand-alone SPACs.
The Finnish legal, regulatory and tax framework seems broadly functional for domestic SPACs. We are also fairly well equipped for cross-border de-SPAC transactions. The Finnish market has recently seen its first SPAC listing, but there are more in the pipeline. Interesting times ahead.