With its financial regulator primed to approve listings, Luxembourg is ready to welcome the flood of SPACs activity moving out of the US. Our colleagues in Luxembourg Salvatore Rosato, Head of Capital Markets, and Cyril Charrié, Client Director, Private Equity, tell us more.
In Roald Dahl’s much-loved children’s story, the golden ticket was the coveted pass that granted admission to Willy Wonka’s chocolate factory. For non-European sponsors of special purpose acquisition companies (SPACs) targeting European investors and merger targets, incorporation in Luxembourg could prove to be the equivalent.
This small nation is already home to a mighty investment fund centre, holding more than €650bn in alternative fund assets. Now it is fast becoming Europe’s leading jurisdiction of incorporation for non-European SPAC entities, with an increasing number of mandates already in play from a variety of players and asset classes.
So far Amsterdam and Frankfurt have taken the lead as listing destinations; but Luxembourg’s financial regulator, the Commission de Surveillance du Secteur Financier (CSSF), is now keeping a close watch. The Dutch regulator is thought to be on the point of limiting the number of listings it allows. If it does reach full capacity, SPAC teams will have to divert to other European markets.
Moreover, Luxembourg already has a market advantage. Many private equity platforms are formed here due to the market’s enhanced flexible corporate legal framework. As such many would welcome the idea of Luxembourg becoming Europe’s fund administrative nucleus for SPACs, and their non-European sponsors.
Luxembourg is already a globally accepted structuring jurisdiction for mergers and acquisitions (M&A), initial public offerings (IPOs) and private equity transactions. Luxembourg holdings also have the option of listing on foreign stock exchanges, strengthening the case for SPAC teams to set up shop there.
The flexibility of the country’s corporate law is another key advantage for SPAC incorporations. Among other things, this allows a flexible share redemption framework, voting right adjustments, the ability to create different classes of shares (including ordinary, preferential, redeemable), and the attribution of specific financial and decision-making rights to sponsors and public investors. Furthermore, the CSSF allows multilingual IPO prospectuses, which can be drawn up in English, German or French.
The review process for prospectuses is quick and efficient, with an eight-to-ten-week turnaround. First comments on a prospectus are usually provided within ten working days, with subsequent reviews days later. Early or informal clearances on key issues, such as the financials, can also be obtained.
Once the IPO prospectus has been approved, the CSSF will send out intra-day passporting notifications for EU-wide public offers and/or admissions to trading on EU-regulated markets.
In a recent podcast Allen & Overy also noted that the merger between the private operating company and the publicly traded SPAC, known as the de-SPAC, will be just as important as getting the initial listing. That makes Luxembourg a great market to absorb what they see as a wave flooding into Europe from the US.
US investors often go through Luxembourg to set up private equity platforms when looking to acquire assets in Europe. These same investors may be tempted to leverage these existing platforms to set up a European Company (Societas Europaea or “SE”), to then merge with the target.
Hundreds of US SPAC teams and listings have come to market in the past year and the US market’s deal flow is now saturated, putting Europe clearly on the radar. We are already seeing signs that activity will increase in several European markets here. For more on this, read our report What’s really driving US SPAC teams to Europe?.