What are SPACs?

SPACs (also known as «blank check companies») are companies with no operating activities whose sole purpose is to raise money in an initial public offering (IPO) in order to acquire one or more target companies within a certain period of time (so-called de-SPAC). For the shareholders of a target company, a de-SPAC is an exit option with greater transaction security and price certainty than an IPO.

SPACs are typically launched by one or several investors (including private equity firms), who act as so-called sponsors and who are responsible for the search of a suitable target company after the SPAC’s IPO. The sponsors assume the risk of failure of the SPAC; in return, they are able to acquire a stake in the SPAC (combined with the target company) on preferential terms. The SPAC investors are able to vote on a de-SPAC and have a redemption right regarding their SPAC securities.

What requirements do Swiss SPACs have to comply with?

SIX has established a regulatory standard for SPACs that is tailored to the particularities of SPACs. Under this standard, shares and convertible bonds of Swiss SPACs can be listed.

Requirements for a SPAC: In order to be listed under the new regulatory standard, a SPAC must meet the following requirements:

• the SPAC is a Swiss stock corporation (Aktiengesellschaft) whose exclusive purpose is the direct or indirect acquisition of a target company and which is dissolved after a maximum of three years from the first trading day if no de-SPAC has been completed by then;
• the IPO proceeds have to be deposited in an earmarked escrow account;
• the SPAC investors are able to vote on a de-SPAC;
• at least those SPAC investors who vote against the de-SPAC have a redemption right in respect of their shares or convertible bonds;
• the founders, sponsors, directors and members of the executive committee of the SPAC undertake not to sell their securities for a period ending at least six months after the completion of the de-SPAC (lock-up); and
• in case of a liquidation of the SPAC, the SPAC investors have a liquidation preference over the sponsors.

Disclosure requirements regarding the SPAC IPO: Beyond the usual content of an IPO prospectus, SPACs have to disclose additional information at the time of the IPO, including information on the dilution in a de-SPAC, a description of potential conflicts of interest of the founding shareholders, sponsors, directors and officers and the banks involved, as well as information on the de-SPAC, including information on the target market in which potential target companies will be searched for.

Disclosure requirements regarding the de-SPAC: In view of the vote on a de-SPAC, SPACs must publish information on the intended de-SPAC and the target company, either in the prospectus (if one has to be prepared, e.g., for purposes of a capital increase) or in a separate information document. This information must also include an independent fairness opinion on the valuation of the target company. Furthermore, SPACs must publish quarterly financial statements in the two fiscal years following the de-SPAC if the target company does not have financial statements covering three fiscal years in accordance with a recognized accounting standard.

Are there any particularities in the listing of convertible bonds by SPACs?

As a special feature compared to other jurisdictions, Swiss SPACs can list not only shares but also convertible bonds. This makes it easier to implement the investors’ right of redemption; in addition, there may be tax benefits of such a structure. The rules on SPACs also apply—with certain technical modifications—to convertible bonds issued by a SPAC.

Are other legal principles also relevant for SPACs?

As Swiss corporations, SPACs benefit from the flexibility of Swiss corporation law, which will be modernized in 2023. The corporate governance and majority requirements in the SPAC (e.g., for the de-SPAC) can generally be freely chosen, and investors benefit from the high standards of Swiss capital markets law. In addition, Swiss capital market practice is familiar with PIPE transactions, which are often carried out in order to validate the valuation of the target company in a de-SPAC.

Swiss SPACs are neither subject to the Collective Investment Schemes Act (CISA) nor to Swiss anti-money laundering legislation.

New rules make Swiss stock exchange more attractive

SPACs are an additional investment, financing and exit opportunity. Following the rule change as of December 6, 2021, Swiss investors and companies will be better able to benefit from the advantages of SPACs. This strengthens the attractiveness of Switzerland as a financial center.