The SIX Swiss Exchange (SIX) has finally refreshed its rulebook to allow special purpose acquisition companies (SPACs) to go public in Switzerland. Following an extended regulatory clearance process by the Swiss Financial Market Supervisory Authority (FINMA), SIX now published the revised Listing Rules (LR) and a companion Directive on the Listing of SPACs (Directive SPACs), which will become effective on 6 December 2021.
Given their explosive popularity in the United States during the past two years, SPACs have enjoyed strong interest and attention among Swiss capital market players. A SPAC – often referred to as a "blank cheque company" – is incorporated as a pure shell company. It raises its capital in an initial public offering by issuing shares (IPO shares) or convertible bonds, and operates as a "blind pool" for the specific purpose of acquiring, or combining with, a non-listed operational company. Following its IPO, a SPAC will seek to source an acquisition within a pre-set acquisition period. Completion of the acquisition process is known as De-SPAC. If a De-SPAC happens, the non-listed operational company will become public, effectively bypassing the traditional IPO process.
To date, the existing Listing Rules did not allow SPACs to list on SIX. The revised SIX LR introduce a new regulatory standard denominated "SPACs" and provide for principle-based regulation governing the listing of SPACs. Importantly, the new listing rules also incorporate additional prospectus disclosure requirements, in particular for a De-SPAC, and include maintenance of listing and reporting requirements following the De-SPAC.
SPAC Listing Requirements
Structurally, SPACs must be incorporated in the form of Swiss stock corporations (Aktiengesellschaft; société anonyme) with the exclusive purpose of acquiring, or combining with, non-listed target companies. They have a time-limited existence of three years if no De-SPAC has been completed within that period.
To enable the concept of SPACs, the LR track record requirement (newly listed company must have operated for at least three years before listing) is abolished. Another key exemption concerns the requirement to produce annual financial statements covering the last three full financial years preceding the listing application.
The SIX Directive SPAC implements additional SPAC-specific disclosure requirements which must be included in the listing prospectus or in an additional document. The prospectus must, among other things, contain information on the founders, board and management of the SPAC, the De-SPAC and its process as well as a description of the preferential treatment of IPO shares (including a mandatory liquidation preference for the holders of IPO shares over all other classes of shares up to the IPO price).
In line with international practice, the capital raised in the SPAC's IPO must be deposited into an escrow account with a banking institution and may only be used for the purposes described in the listing prospectus, in particular for the acquisition of one or more acquisition targets, the repurchase of IPO shares of non-assenting shareholders in connection with the De-SPAC or the repayment of the liquidation preference of IPO shares in connection with a potential liquidation of the SPAC. The use of the escrow amount is specifically prohibited for the settlement of any operating costs of the SPAC.
De-SPAC Requirements and Process
The De-SPAC must be approved by a majority of the votes of the shareholders of the IPO shares represented at a special meeting of the shareholders. Moreover, shareholders must be granted a redemption right in respect of the IPO shares, although such redemption right may be limited to those shareholders that vote against the proposed De-SPAC. This means that as for SPACs abroad, PIPE transactions intended to replenish the equity capital of the SPAC at the time of a De-SPAC will be critical.
Importantly, the new LRs address a significant gap that would otherwise exist in the information available to the market by requiring that the SPAC prepares and publishes a detailed "information document" ahead of the special meeting of the shareholders. That document is required to contain extensive information on the acquisition target and the contemplated De-SPAC. The information document must also contain a report by an independent body (such as a recognized auditing firm) on the appropriateness of the offer, in particular with regard to the determined value of the acquisition target.
Post De-SPAC Reporting Obligations
In deviation from the standard obligation to report semi-annually, the post-De-SPAC company is required to publish quarterly financial statements, unless the acquisition target already issued financial statements under internationally recognized financial reporting standards for three consecutive financial years. The quarterly financial statements must be prepared by the company for a maximum of two full financial years (following De-SPAC) and be published within two months after the close of the respective quarter.
SIX has long attracted interests from companies across the world. Many have expressed interest in a reverse listing via a De-SPAC on SIX. For a SPAC to be successful, experience accumulated abroad shows that there must be a blend of clear regulation and investor protection. In this respect, we believe that the new LRs provide an attractive environment for SPACs to become listed on the prominent SIX, while simultaneously maintaining investor protection. While additional factors such as taxation or certain costs (e.g. fairness opinion for De-SPAC; current negative interest) will need to be considered in individual cases, Swiss (De-)SPAC may serve as an appealing alternative to an IPO or private M&A trade sale exit for both Swiss and non-Swiss private companies.
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