Nasdaq Introduces SPAC Listings in the Nordics
As of 1 February 2021, Nasdaq is introducing specific admission requirements for SPACs for Nasdaq Stockholm. Pending regulatory approval it is expected to be rolled out to the remaining Nordic markets, including Nasdaq Copenhagen.
Special Purpose Acquisition Companies (SPAC) are being introduced into the Nordic market by Nasdaq Stockholm following amendments to the Nordic Main Market Rulebook as of 1 February 2021. A US financial invention developed for leveraged acquisition finance transactions, SPACs essentially constitute a shelf company designed to take target companies public without having to go through the lengthier traditional IPO process to gain admission to trading as a listed company on a regulated market. The SPAC will be listed as a company specifically for the sole purpose of raising capital to finance one or more potential acquisition opportunities after the initial public offering. At the time of the IPO, the SPAC will not strictly have an on-going business on its own but a declared intention to acquire on-going businesses of target companies within a certain set of parameters.
A listing through a SPAC vehicle is similar to a standard reverse merger. However, unlike a standard reverse merger, a SPAC comes with a clean publicly listed shell company and certainty of financing in place. A SPAC is typically incorporated and listed by experienced sponsors with a long track record in acquiring companies. Each SPAC has its own specified time frame within which it must complete an acquisition of one or more targets following the IPO. With the recent amendments to the Nordic Main Market Rulebook to accommodate SPACs, Nasdaq Nordic seeks to accommodate the rising interest from market participants for this US-style acquisition vehicle in the Nordics. So far, the new SPAC rules only apply to Nasdaq Stockholm. However Nasdaq also expects to introduce the SPAC rules on the other Nordic exchanges, including Nasdaq Copenhagen following approval by the national authorities.
In contrast to a traditional stock exchange listing, the stock exchange does not require a SPAC to have an accounting and business history, given that by its very nature it cannot meet such requirements at the time of its listing. It is however required that the SPAC acquires one or more target companies within a specified period in accordance with the prospectus and the proposed parameters of the acquisitions. A SPAC will still have to meet the usual requirements for the preparation of a prospectus and the supporing documentation in accordance with the prospectus rules to gain admission to the market. This financing technique permits the investors to finance the early acquisition stage and to invest in the acquired target companies within a liquid market such as Nasdaq, all the while not necessarily knowing the specifics of the targets. With the financing in hand, the SPAC can commence identifying the acquisition targets and enter into negotiations with the potential vendors.
While SPACs have previously been possible in Denmark, they constituted a rare exception to the general market. With the recent developments, an increase of SPACs in the Danish market is to be expected for the benefit of the potential investors. This will be subject to final regulatory approval by th Danish FSA.
Two-Step Listing Procedure for SPACs
The revised Nasdaq Nordic Main Market Rulebook allows SPACs to be listed on the main market in a two-step process:
the exempt SPAC IPO before any acquisitions; and
Post-acquisition of a target company.
Firstly, the SPAC must publish an approved prospectus to satisfy the general admission requirements under the Nordic Main Market Rulebook, except for the requirements with respect to historical financial information and business operations. Moreover, the normal requirement that the members of the management are employed by the issuer can also be exempt, provided that it is shown that there is sufficient managerial competence and experience available to adequately manage a listed company.
Secondly, following the acquisition of a target company, the SPAC is required to meet all listing requirements set out in the Nordic Main Market Rulebook for the merged company post-acquisition. The merger will however require the prior approval of Nasdaq for a full listing to be effective.
Listing Requirements for SPACs
The key listing requirements for SPACs on Nasdaq's Nordic exchanges are the following:
Deposit of Proceeds in Trust Account: At least 90% of the proceeds from the listing must be deposited in a trust account with an independent bank as trustee pending the future acquisition of one or more target companies.
36-Month Deadline and Minimum Market Value for Acquisition of Target Companies: The SPAC must within a 36-months' period from the date of the listing (or a shorter period specified in the prospectus) have completed one or more acquisitions with an aggregate market value of no less than 80% of the value of the trust account, excluding any underwriter fees and taxes.
Special Requirements until the 80% Threshold is met:
Until the 80% treshold is met, any proposed acquisition of a target company by the SPAC requires that:
a majority of the independent board members of the SPAC approve the acquisition;
a majority of the general meeting approves the acquisition;
Nasdaq will be notified of the acquisition prior to it's announcement to the market; and
the merged company meets Nasdaq's listing conditions as set out in the Nordic Main Market Rulebook.
This means that as soon as an acquisition agreement has been reached, the SPAC must initiate a new listing process in relation to the merged company. The merger will therefore be conditional on Nasdaq's confirmation that the merged company will meet Nasdaq's listing requirements. It is currently not entirely clear from Nasdaq's rules on SPACs how these listing rules will have to be met in practice.
Possibility of Cash Redemption for Shareholders
For as long as the 80% treshold has not been satisfied, the SPAC's articles of association must provide the shareholders the opportunity to demand that their shares be redeemed in cash. The redemption must be equal to the shareholders' pro rata share of the aggregate amount held in the trust account less any taxes payable and amounts distributed to the management for working capital purposes. The redemption can be subject to a specific limit set by the SPAC. The shareholder redemption requirement does however not extend to the management, the sponsors or their affiliates.
Pending the result of the regulatory process by the Danish FSA, it remains an open question if the Danish regulator will permit the redemption right to be based on a shareholder’s pro rata share of the cash trust account to be implemented in its current form with respect to SPACs to be listed on Nasdaq Copenhagen. It may potentially be considered price manipulation by the Danish regulator and therefore remains an open issue pending regulatory approval.