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SPACs With German Targets Have A Unique Set Of Challenges

In Europe, especially Germany, record M&A activity is being driven by the huge sums raised in SPAC IPOs in the United States, as well as the rivalry to deploy that capital during the SPAC's limited existence. Institutional investors prefer large-cap firms for their liquidity, while small and medium-sized technology and growth companies are valued more conservatively in Germany than in the United States, despite the fact that the German equities capital markets are at all-time highs in the United States. They are increasingly attempting to gain access to the capital markets in the United States, and as a result, they are also open to offers from the United States. Several European IPO targets have been approached by SPACs. Typically, the purchasers are looking for a price range of $500 million to $1 billion.

A de-SPAC transaction, also known as a SPAC combination, is frequently regarded as a less risky and more economical alternative to an IPO when it comes to accessing capital markets. However, this is rarely the case, especially when the target is a European company, because implementing such combinations necessitates preparing the European company for US capital markets, arranging PIPE (private investment in public equity) financing, and possibly establishing complex holding company structures.

To Choose An Appropriate SPAC Partner, Create A Well-Organized Approach

At the moment, more than 450 U.S. SPACs are looking for a target to acquire before the end of 2022 or early 2023. Because not all combinations are appropriate, potential German targets should establish a set of criteria and follow a well-structured selection procedure. Buyers' geographic or industry interests, as well as the size of a SPAC's PIPE strategy and adviser team, should all be taken into account. As an indicator of prospective redemption levels, other relevant issues include the desire of SPAC founders to invest in the PIPE, the availability and quantity of earnout warrants or share structures for the target's current shareholders, and the quality of the SPAC's shareholder base.

Choose A Structure That Is Appropriate

Making the most of the United States of America Because corporate law in Germany imposes higher technical requirements and is less flexible than in the United States or other European jurisdictions, SPAC with a German firm poses complex corporate law and governance concerns.

The so-called "double dummy" arrangement, in which both the U.S. and the U.K. An operating company in Germany and SPAC become subsidiaries of a newly founded parent company, which is usually incorporated under Dutch or Luxembourg law, which is more closely aligned with US law. Nonetheless, each de-SPAC involving a German target is unique and entails a variety of different restructuring phases, mergers, and capital increases.

Prepare For A Lengthy And Complex PIPE Procedure

A successful de-SPAC is dependent on the additional capital from institutional investors supplied by a PIPE financing in conjunction with the combination. Raising capital from other parties confirms the target's value and ensures that, even if the SPAC's shareholders are reserving large amounts of cash, the target will have enough cash after the merger.

Concentrate On The German Target's Capital Market Readiness

It is critical to ensure that the private target is ready for the public equity markets. It must be able to meet the requirements of international private issuers in terms of auditing, accounting, and internal control, as well as compiling financial statements in accordance with US accounting standards. Oversight Board for Public Companies' Accounting (PCAOB). It must also build risk management and governance structures, as well as execute and follow market-standard internal control and compliance processes.

It's Difficult To Finance An Acquisition With The De-SPAC

A substantial cross-border acquisition of another business has been financed by at least one de-SPAC deal with a German target. When arranging such a deal, the parties must consider the possibility that initial SPAC shareholders' redemptions could leave the de-SPAC firm with insufficient capital to pay the cash portion of the purchase price and meet the merged entity's minimum cash requirements.

Inevitably, These Transactions Are Costly And Time-Consuming

A cross between a U.S. SPAC and German targets are frequently more sophisticated and document-intensive than traditional US targets. An initial public offering's procedure In most cases, it will take at least five or six months to put it into action. A German target's de-SPAC can take nine to twelve months, depending on the time it takes to prepare PCAOB-level audited financials (assuming it qualifies as an FPI) and ensure the German target's internal systems are ready for the US public markets, as well as the corporate restructuring, mergers, and capital increases required to incorporate a commonly used Dutch or Luxembourg holding company.

About The Authors

Alberto Thompson

Alberto Thompson - I live in Vancouver, Canada, and work as a web developer and graphic designer. Back end programming (PHP, Django/Python, Ruby on Rails) to front end engineering (HTML, CSS, and jQuery/Javascript), digital usability, user interface, and graphic design are all areas of web development where I spend my days. I'm a huge fan of web creation and design in all of its forms, as well as assisting small businesses and artisans with their online presence.

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