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SPAC’s interest in region growing, but how does it work?

SPACs, or special purpose acquisition companies, aim to acquire private companies and make them public, by virtue of the SPACs themselves having gone through an IPO. They are looking at this region. Here's what you need to know

SPACs have been looking at the Middle East markets for a bit over 2 years SPACs look for financial reporting, compliance controls, growth, new product functions, and human capital SPAC investors need to believe in the high-growth nature of their targets

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Being a full-service law firm with comprehensive knowledge of local laws and customs and dexterity in a range of languages including Arabic, English, and French, BSA Ahmad Bin Hezeem & Associates LLP provides corporate legal services across the UAE, Saudi, Oman, Lebanon, and Iraq.

Among its many expertise are SPACs, or special purpose acquisition companies, whose purpose is to acquire private companies and make them public, by virtue of the SPACs themselves having gone through an IPO.

We spoke to Nadim Bardawil, Partner at BSA, and asked:

1- Are there SPACs in the MENA/GCC looking for target acquisitions?  

SPACs have been looking at the Middle East markets for a bit over 2 years although popular SPAC acquisitions have made the media headlines over the last 12 months. SPACs tend to focus either on specific sectors or jurisdictions but some SPACs are also established with a general approach to investments. Of note in the region, SPACs are looking to make acquisitions in technology, energy, and healthcare. This matches up with some of the more up-and-coming and robust industries in the region.

2- What do SPACs look for in target companies?

As with most investments, SPACs are looking to maximize shareholder returns as a first priority and so we see them focus on scalability and upside. In terms of other factors, the MENA region and Arabic-speaking countries present a great market opportunity especially for businesses that only operate in a handful of jurisdictions.

3- For SPACs, what qualifies a private company to become publicly listed?

As with the question above, the major qualification will of course be current and potential returns. That being said, companies must also have the right operational readiness in terms of financial reporting, compliance controls, growth, new product functions, and human capital.

4- What is the relationship between SPAC board members, the initial funders, and the target company founders?  

These terms would all be agreed upon in the acquisition documents. There are some transactions where the founders retain C-suite functions as well as seats on the board while others where they would only remain at the operational level. Generally, a SPAC would target a company that continues with the same management team to guarantee further growth as well as to incentivize the founders with further KPIs based on future targets.

On the employee side, while we don’t automatically see layoffs (unless dealing with a more aggressive style takeover), there are always questions on how an  (ESOP) will vest, be restructured, or even continue to operate. This is usually an important element for founders who have managed to retain talent thanks to promises for future equity in the business.

Lastly, a key consideration for a SPAC deal to close is for the investors to believe in the high-growth nature of the target. Founders would be looking at these investors to provide tools to accelerate market expansion as well as to put in place strategic advisors, be it new members of the board or new executives.

5- How can private companies (target companies) investigate the SPAC, usually secretive in nature?

At this stage, we are mostly, if not only, seeing SPAC’s IPO in the United States which means that a SPAC needs to register and comply with any applicable SEC provisions. Of late, the SEC has begun to crackdown on SPACs due to the lack of disclosure by the SPAC of its sponsors, directors, and management team. This information must now be disclosed by the SPAC as well as any potential conflict of interests, compensation arrangements between the SPAC and any 3rd party involved in the potential IPO, and a litany of other items.