SPACs: Flavour of the season or real opportunity for entrepreneurs to approach public markets?

Earlier than a SPAC is absolutely useful, one would want to keep in mind elements reminiscent of tax implications for shareholders in addition to international change and different regulatory implications. Picture: Reuters

• By Nitesh Mehta and Arjun Goradia

A phenomenon that has actually picked up steam and damaged all types of information within the final two years and extra so within the final 4 months is Particular Goal Acquisition Firms (SPACs) – funding autos that can be utilized to strategy public markets. Merely put, these autos elevate capital, get listed and thereafter look to amass an present unlisted goal firm throughout sectors/geographies. By doing so, it helps unlock worth for SPACs traders and the goal firms additionally get to go public in a compressed timeframe.

The US market has skilled a spike in SPAC exercise. In 2020 the variety of SPACs has been virtually as much as 5 instances that of 2019 and in 2021 SPAC exercise has already crossed the 2020 numbers inside 4 months. There are at present greater than 400 SPACs in search of acquisition and an estimate of USD 140 billion dry powder obtainable.

The current actions of SPAC listings within the US are additionally anticipated to shortly appeal to the Indian markets, which have fascinating non-public firms which are able to go public when it comes to scale and measurement of the enterprise.

The broad cause why a number of SPACs have been surging is especially as a result of ease of itemizing via a SPAC route as in opposition to itemizing via a conventional IPO route for elements reminiscent of:

• An IPO course of usually is a rigorous course of, entails in depth preparation (together with roadshows for promotion), and sometimes takes 12-18 months for itemizing abroad whereas an abroad itemizing via the SPAC route can usually be consummated in 6-8 months.
• The laws in India at present don’t allow a direct abroad itemizing for Indian firms, whereas Indian Firms who want to go public can take into account elevating funds by the use of the SPAC route.

The spike within the variety of SPACs and colossal liquidity obtainable to be deployed demonstrates that SPACs are right here to remain, and the chance is for actual. Nonetheless, the success of SPACs wouldn’t solely depend upon the identification and acquisition of the correct targets but additionally as to what extent the worth appreciation on funding for SPAC traders takes place post-acquisition, particularly contemplating that the shares costs of among the SPACs which have gone public have hovered round their preliminary providing worth publish goal acquisition. Accordingly, elements such because the credibility of the SPAC Founders and the selection of goal for SPACs can be the important thing determinants of a promising future for SPACs.

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SPACs, from numerous nations internationally (particularly the US), have been approaching numerous companies in India particularly these within the know-how, healthcare, and leisure areas, with a bid to spend money on them and unlock their worth globally. Nonetheless, founders additionally want to know whether or not they’re SPAC prepared when it comes to their present enterprise planning, governance, authorized processes, reporting necessities, and price for compliances as post-acquisition by a SPAC the goal firm can be ruled by US regulators.

Moreover, from an Indian perspective, earlier than a SPAC is absolutely useful, one would additionally want to keep in mind elements reminiscent of tax implications for shareholders in addition to international change and different regulatory implications, particularly for Indian founders and shareholders.

Whereas the laws to accommodate offshore SPAC transactions from an Indian perspective are nonetheless awaited, as an endeavour to draw international capital for enhancing India’s financial development and improvement and to copy international modern strategies for elevating capital reminiscent of SPACs, the Authorities of India via its regulatory authority IFSCA has additionally just lately proposed a draft framework for itemizing of SPACs on the recognised inventory exchanges within the IFSC, in India. Contemplating the measures taken by the Indian authorities for selling companies in India, the Indian markets are prone to see elevated traction and may very well be the following guess for SPACs.

Nitesh Mehta is Companion and Arjun Goradia is Supervisor – M&A Tax and Regulatory Companies at BDO India. Views expressed are the authors’ personal.