Switzerland’s ‘multiplier effect’ makes it ripe for SPAC targets

After a SPAC roadshow with firms across Switzerland, we see an untapped pipeline of target opportunities within a very hospitable deal environment, say Boudewijn Korten, Commercial Director, Emma Holthuizen, Business Development Manager and Boudewijn Thus, Business Development Director

Switzerland’s legal community is eager to get special purpose acquisition companies (SPACs) deals off the ground. That is because many members spent months liaising with Swiss Financial Authority (FINMA) regulators to ensure competitive investor protections were in place.

After some stops and starts, Swiss regulators approved SPACs in December 2021, with VT5 Capital claiming the first SPAC listing in Switzerland that month. The IPO was oversubscribed, raising about CHF200m.

Just as VT5’s SPAC listed, however, the omicron virus took hold, raising question marks over border movements, supply chains, inflation, higher interest rates and talk of higher corporate taxes.

However, nearly two months later, with omicron better understood, the appetite for SPAC listings in Switzerland is still healthy – perhaps even more so now legal professionals, investment firms and sponsors have been able to digest the rules.

Some legal professionals see 2022 as the “year of the de-SPAC”. Sponsors around the world are running out of time to select a business combination and Switzerland possesses one thing other markets lack – an ample supply of business combination targets.

What makes Switzerland attractive for SPAC listings?

• An abundance of quality SPAC targets at varying prices
• An informed investor base
• Established companies ripe for listing

There are about 15,000 multinationals in Switzerland, with one in every four people employed by one. In the pharmaceutical sector, for every job created, an extra 3.2 full-time equivalent jobs are generated in other companies and sectors. If SPAC sponsors take advantage of this significant “multinational multiplier effect” on entrepreneurship, they are likely to be spoiled for choice when seeking their perfect match from:

• Multinationals
• University spin-offs
• Start-ups
• Family offices
• Private equity funds and other asset owners
• Former multinational and investment bank professionals who can build a sponsor network

A thriving start-up community in Switzerland

Switzerland’s start-up community has grown considerably over the past decade thanks to hundreds of multinationals and university spin-outs. Big pharma may take the lion’s share of spin-offs and spin-outs in terms of size and number, but Switzerland’s fintech sector is also fertile ground for sponsors seeking targets with global appeal.

A SPAC listing in Switzerland is the least complicated and fastest route to capital for a target company. The fast-growing fintech segment demands swift growth and regulatory approvals to operate in multiple markets, both of which require capital.

It’s only a matter of time before sponsors catch their second wind after last year’s regulatory hold-ups. The building blocks for successful SPACs business combinations in Switzerland are all there, so we believe sponsors are doing their research while awaiting good news from the maturity of other SPAC markets, such as Luxembourg and Amsterdam. At this point, there’s nothing to hold sponsors back, nor any companies being targeted, if an attractive proposition emerges – and there are plenty.

SPAC listings in Switzerland facts

• SPACs were officially allowed to list on the Swiss Bourse SIX from 6 December 2021.
• SPACs in Switzerland must be listed as a stock corporation (AG/SA) with the sole purpose of merging with or acquiring one or more operating companies. The AG structure is more flexible on stock splits and competitive tax treaties. It is also less onerous when it comes to investor fiduciary and corporate governance for raising capital compared with limited liability companies (GmbH).
• A Swiss SPAC is not bound by EU regulations, which will become increasingly complex and stringent.
• The Swiss SPAC business combination term has a three-year limit, giving sponsors ample time to find a target.
• If the business combination term limit is not met, the SPAC will be automatically delisted and liquidated. Funds in the escrow account will be returned to investors.
• The freely tradable securities must amount to at least 20% of the outstanding shares and have a market capitalisation of CHF25m (USD 26.8m).
• There is neither a track record requirement nor an obligation to have financial statements going back three years for the SPAC issuer. This changes after the de-SPAC, as we explain here.

Why Intertrust Group?

• As SPAC standards and capital markets evolve across the globe, you may need a bespoke approach from a service provider with a genuine understanding of how markets are changing.
• Our international team of experts in Switzerland and active SPAC markets can provide company formation services, global corporate secretarial services, domiciliation and management, process agent and trustee services, escrow services, facility agent and cash management services.