Toronto Bullish on SPACs
Special Purpose Acquisition Companies, now gaining traction on the Euronext, will likely soon find themselves trading on the Toronto Stock Exchange as the number of IPOs continues to stagnate.
September 9, 2008
Special Purpose Acquisition Companies, now gaining traction on the Euronext, will likely soon find themselves trading on the Toronto Stock Exchange as the number of IPOs continues to stagnate.
Special purpose acquisition companies (SPACs) continue to generate investment in a down market and will next find themselves with the opportunity to list on the Toronto Stock Exchange, possibly by the end of the year.
The exchange said it is weighing a regulations process that will offer strong investor protections, and hopes to approve by the end of the year steps for blank check companies to enter the marketplace. In the US, an increasing amount of SPACs are being created with guards in place to keep one or two investors who hope to reap a profit from voting down any and all combinations and liquidating a company from so easily being able to do so.
Jose Santos, an associate with law firm Maples & Calder, which, among several fields, specializes in SPACs, called the move a "a response to the growing market acceptance of SPACs on the US stock exchanges, in particular NASDAQ and NYSE.”
Ultimately, the move could shift investments north of the border at a time when traditional public offerings are seemingly less attractive.
“We are watching what is happening over in the states,” said Julie Shin, director for TSX’s listed issuer services. “I’d love to see the first SPAC listed before the end of the year.”
The SPACs would have to have a minimum of $30 million to become listed and keep 90% of funds raised in trust. Further, TSX’s Web site states, at least 80% of the trust is required to be spent on an acquisition, a regulation that more closely mirrors the US regulatory leanings than that of the Euronext market. They will have at most three years to complete a deal and then 30 days after that to wrap up the liquidation process, provided there is one. Comments will be made available to the public, Shin said.
In a statement posted online illustrating its rules, TSX said: “As a result of the growing market acceptance of SPACs in the United States… TSX is proposing to provide a framework for the listing of SPACs on TSX. Recent SPAC offerings have included a wide range of investor protections that mitigate TSX’s previous concerns about listing SPACs.”
The move is a shift in policy for the exchange and could generate a new market which draws liquidity from the US and to other nations’ markets; recent Euronext listings of its first SPACs have taken public nine-digit companies often seeking to do business in Europe, or in other instances, well beyond the confines of US boundaries.
For example, in 2006, Tailwind Financial Inc., an American blank check company, said in its federal filing it would spend about $105 million looking for a buyout candidate to take public in Canada.
Part of the flight by SPACs to other markets coincides with aggressive hedge fund management of shares that has, on many occasions, derailed a transaction and created profits for investors who sold warrants off separately from stocks—these warrants, when a blank check company dissolves, become worthless, enriching instead investors who sold them.
Rick Miller, partner with Powell Goldstein, an Atlanta law firm, said investors who buy into blank check companies only to vote with prejudice against their proposed transaction have hampered their success in the US, and perhaps triggered SPACs’ flight to foreign nations. Miller opined that, like those cited by the TSX spokesman, added investor protections to prevent one or two investors from killing a deal might help them gain acceptance north of the border.
Shin said TSX has not made any regulations specific to preventing a recurrence of so many liquidations based on select investors’ decision to kill a deal in anticipation of gaining a warrant sale profit, but the exchange reserves the right to make alterations based on comments it receives for the next month.
One industry expert commented that the opening of the Toronto market to SPACs might also draw money once bound for the Euronext market away from there, where blank check companies have recently sought listings. This, the source said, hinges on how much the listing standards to be imposed in Toronto differ from Euronext regulations.
The Toronto Stock Exchange is taking comments on its new rule consideration through mid-September.
The Canadian market will likely be friendlier to small- to mid-size SPACs, another industry professional said, and will ultimately draw deals in the range of $100 million to $400 million. Toronto’s exchange has been aggressive in listing companies that operate in the US as well, the professional said, and continues to look for cross-border offerings. Instead of just drawing money from American markets, Canadian SPACs may ultimately do that, as well as then using investment pools to buy companies who also generate revenues in the US, marking a reverse of Tailwind Financial’s 2006 play.
SPACs have enjoyed a late-summer surge after stagnating through spring; blank check offerings have made their way to the Euronext market and will continue to do so, marking a new precedent.
Homepage photo courtesy of flickr user Michael Swan.
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