The popularity of SPACs in the United States has extended to Europe, with three SPACs recently listing on the Euronext Amsterdam and one listing on the Frankfurt Stock Exchange. In London, Lord Hill’s UK Listing Review has recommended changes to the London SPAC regime to improve its attractiveness for future SPAC listings. The most recent public listing of a SPAC on the Euronext Amsterdam is a €250m listing by ESG Core Investments B.V. in February 2021 sponsored by Infestos Nederland B.V., an investment firm focused on entrepreneurial sustainable investments. In addition, a Luxembourg-incorporated SPAC listed on the Frankfurt Stock Exchange in February 2021 when an affiliate of the venture capital firm Lakestar Advisors GmbH sponsored the €275m listing by Lakestar SPAC I SE.
We have assembled a table which outlines the basic features of SPACs that have listed in Amsterdam and Frankfurt, with a comparison to the typical SPAC structure in the United States. We have also included details of the structure commonly used for London SPAC listings historically, where the typical US terms can be mirrored, and where the recent Lord Hill review has proposed amendments to the existing regime. The FCA, the UK regulator, has said it will consult on the recommendations, with the consultation process taking place before the summer and with rule changes in place before the end of the year.
The basic structures in the US, Amsterdam and Frankfurt are very similar and will be familiar to anyone versed in the current SPAC phenomenon – investors buy units consisting of shares and a fraction of a warrant, the sponsor obtains a near-free promote and contributes some at-risk capital, the IPO proceeds go into trust, the SPAC has up to 24 months to find an acquisition target in a specified sector, SPAC shareholders must approve the business combination, and
SPAC shareholders have the right to redeem their shares at the time of the business combination.
Among the four jurisdictions, Frankfurt and the US are the most similar. For a Frankfurt-listed SPAC, entities organized in Luxembourg or The Netherlands have recently been used to resemble the US SPAC structure. In addition, the Frankfurt Stock Exchange has introduced listing rules specifically for SPACs to make it easier for them to list in Frankfurt.
The Amsterdam SPACs follow the same basic outline as the US and Frankfurt SPACs, but with some differences described below. However, Dutch law allows greater flexibility than the terms adopted in the three recent Amsterdam listings. Dutch law does not have rules that apply specifically to SPACs only, and Dutch law allows further flexibility to entities formed as a BV. 1
We have compared key features of recent SPACs listed in Amsterdam, Frankfurt and the United States, together with the historical market practice and the potential new rules in London, below and in the table found in the linked PDF.
• United States: In the United States, SPAC business combinations generally require the approval of a majority of the votes cast, and the sponsor may vote its shares.
• Frankfurt (assuming a Luxembourg-organized entity): In the recent SPAC listing in Frankfurt, the business combination requires the approval of a majority of the votes validly cast, and the sponsors/founders may vote their shares. The listing rules of the Frankfurt Stock Exchange permit any structure where assets are held in trust and a 50% shareholder majority determines the use of such assets, and the sponsors/founders are permitted to vote their shares. In addition, for all matters submitted to a shareholder vote, including any vote in connection with the business combination, except as required by Luxembourg law, the holders of sponsor/founder shares and the holders of public shares may vote as a single class, with each share entitling the holder to one vote.
• Amsterdam: In contrast, in the three recent SPAC listings in Amsterdam, the business combination has required the approval of 70% of the votes cast, and the sponsor could not vote its founder shares.
• Further Dutch Flexibility: Dutch law could allow more flexibility than the three listed SPACs - for NVs the approval of the business combination only requires the approval of more than 50% of the votes cast, for BVs there is no explicit rule specifying a percentage vote requirement, and Dutch law does not restrict SPAC sponsors from voting their founder shares in connection with the business combination.
• London: Historically SPACs listed on London’s standard listing segment have not required shareholder approval for an acquisition (rather they have required board approval, commonly with a majority of independent directors voting in favour), but there is no reason this cannot be included in the structure. The UK Listing Review has proposed a revision of the rules that can require the suspension of trading in the shares of a London SPAC when it announces a proposed acquisition – widely seen as unattractive to SPAC investors – and replacing them with other mandatory investor protections in line with the established practice in the United States. This would include shareholder approval for acquisitions and redemption rights being offered to investors.
• United States: In the United States, shareholders can redeem whether or not they vote for or against the business combination (and whether or not they vote at all). • Frankfurt: As in the United States, shareholders can redeem their shares irrespective of their participation and vote at a shareholders’ meeting for the purpose of approving the business combination (and whether or not they vote at all).
• Amsterdam: In contrast, in the three recent SPAC listings in Amsterdam, a shareholder of a SPAC was permitted to redeem its shares only if the shareholder voted against the business combination.
• Further Dutch Flexibility: Dutch law could allow more flexibility than the three listed SPACs - there are no rules prohibiting a SPAC structure in which shareholders are also allocated a redemption right if they vote “for” a business combination.
• London: As in the United States, there is flexibility to allow for shareholders to have a complete redemption right subject to the SPAC having sufficient distributable reserves to fund redemptions. English company law provides a straightforward process to generate such reserves through a reduction of capital. This has not been typically included in historical London SPACs but it is recommended in the UK Listing Review as a protection for SPAC shareholders in place of the suspension of trading of its shares on announcement of an acquisition.
• United States: In the United States, up to 100% of the SPAC’s shares can be redeemed by shareholders in connection with the business combination (so long as the SPAC at all times has minimum net tangible assets of at least $5 million).
• Frankfurt: Similar to the United States, in the recent SPAC listing in Frankfurt, up to 100% of the SPAC’s public shares can be redeemed by shareholders upon the completion of the business combination (subject to the availability of amounts on deposit in the escrow account and sufficient distributable reserves).
• Amsterdam: In contrast, in the three recent SPAC listings in Amsterdam, because the business combination typically requires the approval of 70% of the votes cast, effectively no more than 30% of the shares issued by the SPAC can be redeemed, as only shareholders voting against the business combination are eligible to have their shares redeemed.
• Further Dutch Flexibility: Under Netherlands law, a listed NV cannot redeem more than 50% of its shares. However, if a SPAC is listed as a BV, the 50% cap on redemptions does not apply under Dutch law and the company can redeem an amount of shares up to the amount of its statutory reserves.
• London: As above, there is flexibility to follow the typical US structure in this regard, which may become a regulatory requirement.
• United States: In the United States, the sponsor promote is typically equal to 20% of the SPAC’s shares outstanding, although some sponsors have taken a lower percentage.
• Frankfurt: In the recent SPAC listing in Frankfurt, the sponsor promote was equal to 20% of the SPAC’s shares outstanding.
• Amsterdam: In two of the SPAC listings in Amsterdam, the promote was approximately 8-10% of the SPAC’s shares outstanding in one and approximately 21% in the other. In the most recent Amsterdam SPAC, where the SPAC sponsor acquired additional shares through an additional cornerstone investment in the IPO, the founder shares converted into 20% of the shares outstanding, but the sponsor actually held shares equal to up to approximately 35% of the SPAC’s shares outstanding at closing.
• Further Dutch Flexibility: Pursuant to Dutch/EU law, any shareholder who directly or indirectly obtains 30% of the shares in a Dutch listed NV is required to make a public offer for the remaining outstanding shares (unless waived by a shareholders’ resolution with 90% approval of the votes cast by shareholders other than the acquiror). If the SPAC is listed as a BV, however, this 30% cap does not apply.
• London: Sponsors in the past have commonly subscribed for a class of founder preferred shares, entitling them to an annual dividend amount (payable in shares or cash) subject to a share value hurdle being met. The economics of these terms can be flexible.
• United States: In the United States, all warrants are issued to shareholders when the IPO closes as part of the unit sold in the IPO.
• Frankfurt: Mirroring the US practice, in the recent SPAC listing in Frankfurt, all warrants were issued to shareholders at closing of the IPO.
• Amsterdam: In contrast, in the three recent SPAC listings in Amsterdam, half of the warrants were issued to shareholders when the IPO closed, and the other half will be issued when the de-SPAC business combination closes (to whomever then owns the shares sold in the IPO).
• Dutch Flexibility: Dutch law could allow more flexibility than the three listed SPACs have provided. Under Dutch law, it is possible to mirror the customary US practice.
• London: Historically ordinary shares were issued with 1/3 matching warrants to all shareholders to purchase shares at $11.50 each. Underwriting Fee
• United States: The typical underwriting fee for a SPAC in the US is 5.5% of the IPO proceeds, with 2% paid in cash at the closing of the IPO and 3.5% paid when the business combination closes.
• Frankfurt: In the recent SPAC listing in Frankfurt, the underwriting fee for the SPAC amounted to 4% of the IPO proceeds, with 2% paid in cash at the closing of the IPO and 2% paid when the business combination closes. Furthermore, a deferred discretionary fee of up to 1.5% upon closing of the business combination was agreed.
• Amsterdam: In Amsterdam, in the most recent SPAC listing the underwriting fee was 3.25%, with 1.5% payable in cash at the closing of the IPO and 1.75% payable when the business combination closes.
• London: A typical underwriting fee is around 2-3% on the proceeds from shares in the IPO, excluding those subscribed for by the sponsor, payable on completion of the IPO. There is flexibility to include separate fees on completion of the de-SPAC transaction.
• United States: In the United States, the target or targets must have an aggregate fair market value equal to at least 80% of the value of the assets held in the trust account at the time of signing a definitive agreement. SPACs may acquire more than one target.
• Frankfurt: Frankfurt does not have such an 80% rule. Frankfurt listed SPACs are generally free in their choice of target and can also choose to acquire multiple targets. For the purpose of providing guidance to investors, the recently listed Frankfurt SPAC has provided a non-exhaustive list of guidelines which apply to the SPAC’s expected selection and evaluation of prospective target companies.
• Amsterdam: Similar to Frankfurt, in Amsterdam there is no 80% rule. Dutch SPACs are free in their choice of target and can choose to acquire multiple targets. For the purpose of providing guidance to investors, the recently listed Dutch SPACs have provided a non-exhaustive list of guidelines which apply to the SPAC’s expected selection and evaluation of prospective target companies.
• London: There is no target size restriction.
It is important to consider whether local regulations, other than securities laws, apply to any proposed SPAC listing, particularly since a breach of some of these regulations can carry criminal sanctions. In Europe this will include the Alternative Investment Fund Managers Directive. Factors in the structuring of the transaction will be relevant to that regulatory analysis, including whether the SPAC has a defined investment policy, whether the SPAC pursues a general commercial or industrial purpose but also, absent a harmonized approach in Europe, how regulators ultimately qualify SPACs.
It is still an open question which jurisdiction will become the European centre for SPAC listings in 2021 and beyond for sponsors who would prefer for their vehicles to be publicly traded in Europe. There are a number of reasons why SPACs may prefer to be listed in Europe, including tax structuring considerations, the attractiveness of certain sponsors to European investors, more flexibility on Sarbanes-Oxley and certain corporate governance requirements imposed by the US stock exchanges, and the attractiveness of the areas of focus of certain SPACs to European investors. Euronext Amsterdam, the Frankfurt Stock Exchange and the London Stock Exchange are among Europe’s largest share trading centres and therefore provide significant liquidity to investors. The Frankfurt Stock Exchange has adopted SPAC specific listing rules to enable flexible listing in Frankfurt; in contrast, Dutch law does not have any rules or regulations that are targeted at SPACs specifically. As above, London is looking at potential revisions to its rules later in 2021 to make it easier for SPACs to list in London. We expect that deal terms will continue to evolve as more deals come to the market and business combinations are closed. In particular, Dutch and UK law as well as Frankfurt listing rules are flexible and sponsors may look to navigate the network of company law and stock exchange rules in these and other European listing venues to design structures that are more attractive to both sponsors and investors than those in contained in the most recent listed deals as more deals come to market.