SPACs – cross-border opportunities and challenges
September 2021 | TALKINGPOINT | MERGERS & ACQUISITIONS
Financier Worldwide Magazine
September 2021 Issue
FW discusses cross-border opportunities and challenges for SPACs with Trevor M. Saliba at NMS Consulting, Inc.
FW: How would you characterise the recent popularity of special purpose acquisition companies (SPACs) among sponsors and investors as a means of completing future acquisitions? To what extent has the coronavirus (COVID-19) pandemic acted as a catalyst for this market?
Saliba: While special purpose acquisition companies (SPACs) are not new, they have enjoyed a renewed interest and resurgence in capital markets. A lot of this is based on and supported by the current bull market we have been experiencing. It is difficult to determine if the activity over the last 12 months was normal or could be deemed slow as a result of the pandemic.
FW: What particular advantages does a SPAC offer? How would you compare and contrast the SPAC acquisition method with more common alternatives?
Saliba: The overall benefit of the SPAC model is time to market and the ability to close a transaction with certainty. Moreover, it is providing greater access to capital for stakeholders who would not normally be able to close an initial public offering (IPO) transaction of the same size or parameters.
FW: How would you describe current SPAC activity in various markets around the world? What kinds of cross-border opportunities are being pursued?
Saliba: The interest in SPACs outside of the US has been strong, and it is a result of an ‘overflow’ effect where the US interest in SPACs spilled over into other countries. Interest in Europe is currently very high due to the receptive regulatory environment there, and the ability of a European SPAC to operate in a less-crowded market compared with the US. Specifically, Amsterdam has attracted several SPAC IPOs to date this year, because its regulatory rules are very similar to the US. Frankfurt is showing growth, but the legal structuring questions for SPACs in Germany present a hurdle. The types of opportunities we see are early-stage companies with significant intellectual property or growth rates serving as acquisition targets. These foreign targets are looking to merge with US-based SPACs to have access to the liquidity and efficiency present in the US market.
“Key challenges are cultural transformation and operational integration, as two separate entities from different countries will be combining to operate as one public entity.”
FW: Have any notable SPAC deals with a cross-border component caught your eye?
Saliba: The combination of Netfin Acquisition Corp., a Nasdaq-listed SPAC, with Triterras Fintech Pte Ltd was intriguing. This was an outstanding business combination as Triterras has one of the world’s largest commodity trading and trade finance platforms, and the history of the Netfin team suggests they will be able to grow this platform exponentially and efficiently.
FW: What potential risks and challenges need to be considered and managed when using the SPAC model to execute deals? What cross-border factors need to be taken into account, such as differences in laws, market conditions and tax regimes of foreign countries?
Saliba: A potential risk and challenge for the target company is the substantial amount of time and resources for matters such as accounting and reporting. Also, SPACs must deal with complex valuation issues, risk of personal liability for the sponsors and board directors, and other regulatory requirements. Another risk is that the SPAC management team members are professional investors, but sometimes do not have expertise in the specific market segment in which the target company is focused. This can result in misaligned goals. More key challenges are cultural transformation and operational integration, as two separate entities from different countries will be combining to operate as one public entity. Becoming and operating as a public entity presents a completely different atmosphere for the target company and can lead to significant changes. The regulatory environment is key, as we witnessed recently in the US. The tightening of regulations around SPACs has caused a decline in interest and transactions domestically for the time being. Regulations can change at any given time, so it is important to stay current with governmental entities and their stance on SPAC transactions. Market conditions also play a significant role. As we saw earlier this year in the US, SPACs were getting tremendous investor interest for several months, but this interest has waned and now many SPACs are trading far below the prices they were at just a few months ago. Regarding tax implications, we strongly advise legal, tax and audit professionals to be hired during the SPAC process, to review all potential tax liabilities. Cross-border deals are made much more difficult specifically due to tax laws, as well as due to regulatory rules.
FW: What essential advice would you offer to sponsors and investors looking to participate in a cross-border SPAC, in terms of maximising opportunities and managing challenges?
Saliba: It is imperative that the sponsors are carefully vetted by potential investors. Due diligence is a tremendously important tool when determining whether to invest in a cross-border SPAC. Until the de-SPAC process takes place, an investor is basing their decision solely on the SPAC sponsors’ history and track record in a different country. Meeting with the sponsors, and discussing philosophy and long-term strategy, are key components of ensuring a successful deal. To best maximise opportunities and manage challenges, we suggest sponsors and investors identify advisers and other service providers to help during the process, as it is better to invest in the proper preparations now, rather than being forced to unwind or run into significant hurdles later.
FW: How do you expect SPAC activity to unfold over the coming months? Are we likely to see continued strong demand and execution of deals?
Saliba: We are going to continue to see transactions unfold and, as a result of there being so much capital on the sidelines waiting to deploy, we are going to see deals and transactions that would not be expected.
Trevor M. Saliba is the founder, managing partner and global head of private equity, M&A and strategy at NMS Consulting, where he serves a global client base of public and private companies on business transformation, private equity, M&A and strategy. He currently leads a global team of over 250 professionals across 15 offices. He is an alumnus of Columbia Business School. Mr Saliba is a member of the Young Presidents Organization (YPO) and became a Milken Institute Associate in 2018. He is also a past president of the LA/OC Chapter for the Global Association of Risk Professionals. He can be contacted on +1 (310) 855 0020 or by email: info@nmsconsulting.com.
© Financier Worldwide