24/11/2021

SPACs Accelerating Mergers and Acquisitions and Sustainability

It has been possible to list SPACs in Finland since last spring. The first Finnish SPAC listed in June. In early September it announced its combination with Purmo Group.

Until now, SPACs have mostly been a US phenomenon, but many companies now have their sights on the European market. Globally, the amount of capital looking for a suitable acquisition target is staggering: the aggregate value of mergers and acquisitions is an average of USD 500–550 billion a year. Existing SPACs are expected to announce over USD 700–800 billion in deals over the next two years.

Buoyed by a promising start, SPACs are set to play an important role in Finland, too. This development would be faster if the Finnish Tax Administration would dispel uncertainty by taking a position on the tax treatment of SPACs. There is currently no case law or established taxation practice applicable to SPACs.

Speed is needed, because SPACs could also have a decisive role in achieving sustainability goals. Merging with a SPAC would offer growth companies a new way to raise significant new capital quickly, because the SPAC’s valuation of the growth company can be based on future profit forecasts, which makes early-stage investments possible.

ESG-oriented SPACs offer institutional investors and private investors the opportunity to invest in companies that align with the investor’s own values. Value-driven investors often prioritise long-term value creation over quarterly profits. As listed companies, SPACs are more transparent and better governed than private companies. Under Nasdaq’s new requirements, SPAC boards are also set to become more diverse.

We are in the midst of a radical shift in how our society moves, builds and eats. This transition will require the scaling up of sustainable technologies, which in turn will require an unprecedented amount of capital. SPACs are an innovation that could help achieve these goals.

What is a SPAC?

SPAC stands for special purpose acquisition company. SPACs have no business operations of their own. The owners list the SPAC on the stock exchange and start looking for a suitable acquisition target for the capital raised through the listing.  The acquisition is usually made within two to three years from the listing. Once the SPAC finds a suitable target, the target is merged with the SPAC. In professional jargon, this transaction is called a de-SPAC.