July 26, 2016
A recent report by Torys on special purpose acquisition companies (SPACs) in Canada was quoted in a Globe and Mail article detailing the Canadian landscape for these investment vehicles. A SPAC is a publically traded holding company with a commitment to acquire future target companies within a limited time frame (usually 21-24 months after the IPO). Failing to complete a qualifying acquisition within the permitted time frame will result in the SPAC being liquidated, with the proceeds being distributed to investors and the founders losing their original investment. The first public offering of a SPAC in Canada took place in April 2015, with investors in SPACs gauging its potential success based on the strength and track record of its management team. Below is an excerpt from the article.
The catch for founders is that SPACs must do their buying in a relatively short time frame. Acquisitions have to be made within two years, or investors get their money back. So the complete lack of deals more than a year after the first SPAC made its debut is ominous for those involved.
Law firm Torys LLP said in recent report that the future of the sector is riding on the results from the first generation of companies. The lawyers said: "Long-term, the success of the SPAC in Canada hinges on whether the SPACs that have gone public will complete qualifying acquisitions within their tight time frames."
To read the full article (subscribers only), click here.
To read Torys' report on SPACs in Canada, click here.