Understanding the SPAC lifecycle in Singapore

The SPAC Evolution

The issues associated with the traditional IPO listing and the burden of regulatory paperwork have diverted attention to SPACs which boast a quick and efficient route to go public.

Historically, investors and founders were sceptical of SPACs due to their poor financial performance. However, with excess capital in hand, the tide has turned, and SPACs are becoming an important component of the capital markets landscape.

In recent years, many well-known investors including hedge funds and private equity fund managers have joined the SPAC race. They have brought expertise and credibility to SPAC, cementing its position, not just as the hottest investment vehicle, but also a reputable one.

The SPAC Timeline: how long does it take?

Typically, a SPAC has a two-year window to search and acquire a target company. After a target company is identified, shareholders vote and choose to either merge with the target company, search for new target company, or liquidate the SPAC.
Once shareholder approval for target company is received, the SPAC merges with the target company, this process is called De-SPACing.

• Formation

A SPAC formation involves an experienced management team or sponsor who pays a nominal amount for generally, a 20% ownership of the SPAC share stake. This is often known as the founders’ shares, which reward the initial investors for funding the capital and identifying a promising target.
The sponsor may also be expected to loan additional funds if the SPAC requires additional capital to pursue the business combination or pay other expenses.

• IPO

After formation, the SPAC then raises capital by issuing units for the remaining 80% interest through a public offering - working closely with professional IPO Services to ensure regulatory compliance and efficiency. Each unit consists of a common share and a fraction of a warrant. 
Founder stocks and public shares generally have similar voting rights with few exceptions, namely only sponsors with founder stocks can select the SPAC directors. Institutional investors and warrant holders typically do not have the same voting rights as only whole warrants are exercisable.
At least 90% of the proceeds raised from IPO by SPAC must be placed in a trust or escrow account, where the funds are      retained until a suitable target company is acquired. This account must be maintained by an independent escrow agent that is part of a financial institution licensed and approved by the Monetary Authority of Singapore. Should the SPAC fail to complete a business combination within the stipulated timeframe, the funds held in the trust or escrow account will be released to redeem the public shares.

• Target search and identification

Under the Singapore Exchange (SGX) framework announced on 2 September 2021, a SPAC in Singapore has 24 months to identify and complete a de-SPAC transaction. An extension of 12 months may be considered under prescribed conditions.
Similar to any M&A transaction, the SPAC must undertake the necessary due diligence to assess a target company and its value. Then, it must issue a circular to shareholders to inform them of the potential business combination as well as a valuation report which includes audited historical financial statements.

• Shareholder approval

Following the identification of the target company, the SPAC will undertake a mandatory shareholder vote. The SPAC needs to provide sufficient time to ensure an active solicitation period and an informed shareholder vote.
The business combination must receive approval from a simple majority of the board of directors and be endorsed through a resolution passed by the shareholders.

• De-SPAC

When the conditions in the agreement are satisfied, the merger will be consummated in the De-SPAC transaction. Subsequently, the SPAC and the target business will combine into a publicly traded operating company. 
The sponsor’s founders’ shares and warrants will be under a lock-up period for one year after the closing of the De-SPAC transaction, but it is subject to an early termination. The SPAC would also be subject to continuing listing obligations under the SGX listing manual.

Below are the requirements that need to be met prior to a De-SPAC completion:

• The initial business combination must have a fair market value of at least 80% of the escrowed funds. 
• The De-SPAC must result in a listed issuer with a clearly identifiable core business over which it holds majority ownership or management control.
• The SPAC is required to appoint a financial adviser who also serves as an issue manager to advise on the business combination, under the oversight of Singapore’s regulatory authorities.
• The Issuer must commission an independent valuation of the target business if (i) there is no private investment in a public entity (PIPE) investment, or (ii) the business or assets to be acquired involve a mineral, oil and gas company, or a property investment/development company. The valuation report must be included in the shareholders’ circular submitted for approval of the De-SPAC transaction.
• The shareholders’ circular seeking approval for the business combination must comply with the disclosure standards required for a prospectus.

How we can help

With the inclusion of seasoned auditors, IFRS experts, capital market, tax and transaction specialists, Forvis Mazars in Singapore provide exceptional services and deep insights on SPACs - shaping The Future of Audit with innovative, forward-looking solutions. We offer the following services:

• Audit of prospectus for listing purposes
• Audit of consolidated financial statements
• Issuance of comfort letters and bring-down letters
• Valuation of complex warrants usually issued in SPAC transactions
• Provide with IFRS expertise on the accounting treatment of securities issued in SPACs
• Financial & Tax Due Diligence on the Target Company to achieve the De-SPAC
• Tax Advisory & Structuring throughout the SPAC process

For further information, please get in touch with us today.