Definition and functioning of a SPAC A Special Purpose Acquisition Company (SPAC) is a listed shell company that is founded with the sole purpose of raising capital via the public stock market in order to subsequently acquire one or more unlisted companies. A SPAC has no operating business at the time of listing and only generates active business activity after the successful acquisition of a target company. Investors acquire shares in the SPAC based on confidence in the SPAC management’s ability and experience to select and successfully acquire suitable target companies within a fixed period of time – typically 18 to 24 months. The capital proceeds of the listing remain in escrow until the de-SPAC transaction and are usually protected by defined mechanisms, for example by allowing investors a pro-rata repayment if no successful transaction takes place within the period. If SPAC managers find a suitable company, the merger with this target company takes place, which is referred to as a de-SPAC and gives the acquired company a direct stock market listing.

Legal requirements for formation and listing From a legal perspective, a SPAC is initially a stock corporation under German stock corporation law (Sections 1 et seq. AktG), albeit one without active business activities or its own assets other than the capital raised. For admission to the stock exchange, SPACs must comply with all regulations that also apply to traditional stock corporations when they are first issued, in particular the preparation of a comprehensive securities prospectus in accordance with the EU Prospectus Regulation (Regulation (EU) 2017/1129) and the German Securities Prospectus Act (WpPG). The prospectus must contain comprehensive information on the corporate structure, the management team, the investment strategy, potential risk factors and special legal features. In Germany, the prospectus must be reviewed and approved by the German Federal Financial Supervisory Authority (BaFin), whereby transparency with regard to the structure and objectives of the SPAC must be guaranteed.

The actual core phase of a SPAC structure is the de-SPAC transaction, in which the SPAC acquires the target company and either merges with it or takes over its shares in full. The provisions of the German Reorganization Act (UmwG) are particularly relevant under company law, especially Sections 2 et seq. UmwG in the case of a merger, or company law regulations on capital increases (Sections 182 et seq. AktG) in the case of share takeovers. The shareholders of the SPAC are typically given the right to vote on the transaction and often also the opportunity to withdraw their investment if they do not wish to approve the planned merger. In addition to strategic considerations, legal and regulatory considerations, such as the need for official approvals, antitrust approval or other regulatory requirements, also play a decisive role in the selection of the target company.

Compliance requirements following a successful De-SPAC transaction Following a successful De-SPAC transaction, the new listed company is subject to all regulations and disclosure obligations of listed stock corporations. These include, in particular, the ad hoc disclosure obligations pursuant to Art. 17 of the Market Abuse Regulation (MAR), the obligations regarding directors’ dealings pursuant to Art. 19 MAR and the notification of significant voting rights pursuant to Section 33 of the German Securities Trading Act (WpHG). In addition, the company is now subject to the obligation to publish periodic financial reports in accordance with Sections 114 et seq. WpHG, which generates additional administrative work. Adherence to these compliance requirements under capital market law requires established internal processes and can represent a considerable adjustment, particularly for companies that were previously privately managed.

Advantages of a SPAC from a corporate perspective For unlisted companies, a SPAC structure offers an attractive alternative to a traditional initial public offering (IPO). One of the biggest advantages is that by merging with an already listed shell company, a company can bypass the often lengthy and costly IPO process, which saves a significant amount of time. This allows quick access to the capital market and at the same time offers the opportunity to benefit directly from the SPAC’s existing equity. In addition, the SPAC structure enables the companies involved to achieve a clear and often more attractive valuation on the basis of concrete negotiations instead of having to rely on uncertain pricing in the IPO process. Furthermore, a SPAC may open up better negotiating positions and more flexibility in structuring the transaction.

Risks and challenges of SPAC investments From an investor’s perspective, however, SPACs also entail specific risks, particularly because the specific target company has not yet been determined when the investment decision is made. Investors initially rely solely on the competence and reputation of the management team of the shell company, which entails considerable uncertainty. There is also a possible risk that a successful transaction will not take place within the set period and that invested funds will have to be repaid – possibly with interest or partially reduced. Furthermore, legal and regulatory difficulties at the target company, for example with regard to undiscovered risks or compliance problems, can lead to losses in value after the de-SPAC transaction. Critics also occasionally criticize the lack of transparency and less thorough review process compared to a traditional IPO, which can ultimately harm investor interests. Careful legal due diligence and comprehensive transparency throughout the entire transaction are therefore crucial to minimize risks.