SPAC Governance – What we observed on Euronext markets

On Wednesday 9 December, 2MX Organic S.A raised €300m on Euronext Paris, making it the second SPAC to be listed on a Euronext Market this year. Watch the replay of the bell ceremony. 

These investment vehicles are becoming more widespread in offering operating companies an alternative to access capital markets, allowing a shorter time to market, as well as greater certainty on valuation. 

That being stated, until a SPAC becomes an operating company, it has to set-up a particular governance model to avoid potential conflicts of interest between SPAC sponsors and investors, due to the fact that sponsor remuneration is entwined with the conclusion of a transaction (business combination).

SPAC Governance – What we observed on Euronext markets

Unlike in the U.S. where SPAC legislations provide specific guidance, due to a long history with SPACs, Europe has not yet expressed any dedicated regulation, thus the prospectus taking the lead in the formalisation of SPACs’ organisation. 

As far as the SPACs that recently listed on Euronext are concerned:

• SPAC Boards were composed of sponsors with successful experiences in complementary financing and operational areas, as well as independent members in line with their applicable national governance codes.
• Description of the SPAC Investment strategy was built to find the right balance between providing sufficient guidance on target profiles and adequate timing (2 years was the norm) for investors, without being too restrictive, to give flexibility to sponsors to find the most relevant investment opportunities.
• When the SPAC asserts its intent to combine with a targeted company, the deSPACing process starts. 3 out of the last 4 SPACs that listed on Euronext saw a shareholder general meeting approve the transaction. In all cases, shareholders had the right to get their shares redeemed if they disagreed with the approved transaction. 
• Sponsor remuneration occurring through share allocation at the time of the business combination, sponsors were subject to degressive lock-ups, based on share performance of the newly listed operating company during the first 3 years following the deSPACing.

As you will have understood, the governance of a SPAC is a key factor in its future success, so understanding the ins and outs of its processes is essential. 

Euronext is keen to provide you with a more precise picture of SPACs’ positioning and the importance they will take on in the future real economy through the “SPAC: An alternative path to access capital markets”.