SPACs, innovative vehicles to go public quickly and cheaply

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In June 2021, Wallbox, the Catalan electric car charging systems company, announced its intention to list on the Nasdaq using an investment vehicle called SPAC. This SPAC provided $270 million to Wallbox for future investment and international expansion, and allowed the company to go public only after a few months, in October 2021.

Wallbox

What is a SPAC?

In recent years, a new investment and financing vehicle has emerged that has captured the attention of the media by allowing technology projects with high growth potential to go public. This is known as SPAC, for Special Purpose Acquisition Company.

A SPAC is a vehicle that is listed on the market without any business activity and with the sole purpose of raising funds for the acquisition of a company and making the operation profitable. The necessary capital is raised through an initial public offering (IPO).

The SPAC is a kind of simplification of the classic Initial Public Offering through which a company goes public on the stock market. In the SPAC, simplification is achieved by eliminating intermediaries and financial agents, shortening the time and cumbersome processing of an IPO.

How does a SPAC work?

SPAC is a vehicle for listing on Nasdaq

The SPAC is created by a team of investors (usually hedge funds or private equity firms), and the management team are the so-called sponsors. The SPAC raises capital and in the meantime scans the market for a private company looking to go public.

Once this target company has been identified, all shareholders must agree to the deal. After the acquisition, shareholders have the option of either redeeming their shares in exchange for their initial investment or exchanging their SPAC shares for shares in the acquired company.

Sponsors have a maximum of two years after the IPO to find a target company. If unsuccessful, the SPAC is liquidated and shareholders receive their initial investment plus interest.

If the SPAC is successful, the sponsors have the opportunity to take a 20% stake in the pre-acquisition SPAC with very little money out of pocket. The promoters’ capital covers the costs of the IPO and the salaries of the team while they search for the company to be acquired and raise the money. On the side of the IPO investors, they usually receive a commitment to buy back their shares and a guaranteed interest on the amount invested as well as free options.

Pros and cons of SPAC

Among the advantages of SPAC are:

  • A cheaper, simpler and faster process for businesses
  • SPAC investors can redeem their shares if they disapprove of the takeover
  • A fixed valuation is agreed between the SPAC and the target company, limiting price volatility.

There are also negative aspects to consider:

  • “Blind spots”: when investors buy the SPAC IPO, they do not know which company will be bought and must rely on the sponsors.
  • Opportunity cost of being able to have uninvested money within a maximum period of two years
  • Difficulties in finding a target company
  • Historically lower returns: despite some great success stories, it is generally difficult for SPACs to beat the market. On the other hand, both promoters and shareholders who separate at the time of the merger with the acquired company tend to perform very well.

Talk by Eloi Noya at Acció: “From crowdfunding to tokenization”.

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Our Managing Director, Eloi Noya, was invited by Acció – Agència per la Competitivitat de l’Empresa, the Catalan Government’s agency dedicated to promoting innovation and internationalization of Catalan companies, to give a presentation on the different alternative financing instruments available to small and medium-sized enterprises.

The presentation, entitled “From crowdfunding to tokenization”, took place on 26 April and was attended online by more than 200 companies who were able to learn first-hand about the many solutions that exist on the market and which Altria Corpo allows access to.

Among the most relevant instruments that Eloi Noya explained are some that are still largely unknown by the owners and financial directors of small and medium-sized companies, such as the following:

  • investment crowdfunding or equity crowdfunding, which allows capital to be raised for start-ups or companies that need equity to undertake strong growth.
  • private debt funds or direct lending for the medium-sized segment of companies that want to make investments with more flexible repayment financing adapted to expected cash flows.
  • balance sheet asset-backed financing, with imaginative solutions ranging from the use of existing fixed assets for a rent-back, to a loan secured by inventory, to the more familiar factoring or the use of customer receivables as collateral.

Eloi Noya used the last minutes of the presentation to explain the tokenization of assets, a new concept that, through digital assets, allows the ownership of assets such as real estate, art or shares to be fractioned, so that they can be used for the transmission of these assets in a blockchain environment, or to obtain financing and liquidity in a more agile, efficient way and without intermediaries.

You can see the whole speech in the following link (speech in Catalan):

Altria Corpo and PKF Attest support companies in applying to the COFIDES Recapitalisation Fund

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The COFIDES Recapitalisation Fund aims to quickly and effectively strengthen and restore the solvency of medium-sized companies (between 10 and 400 million euros in consolidated turnover) in any sector which, having no viability problems prior to the COVID-19 crisis and being viable in the medium and long term, are being affected by the effects of the pandemic.

In addition, those companies that exceed 400 million euros and justify not having been able to access the SEPI Support Fund, because they do not reach the minimum amount of support provided for in this fund, may also apply for and be beneficiaries of the Cofides Recapitalisation Fund.

  • Maximum total amount to apply for:
    • Large Enterprise: between EUR 4 million and EUR 25 million per beneficiary.
  • Type of instruments:
    1. Equity instruments and/or equity hybrids (participating loans): the minimum amount necessary to ensure viability and not to improve the capital structure at 31/12/19 (measured as Equity / Net Financial Debt).
    2. Other additional credit facilities (normally ordinary loans): the most favourable amount for the company resulting from (i) 2 x annual wage costs 2019, (ii) 25% total turnover figure 2019
  • Term:
    • Equity instruments and/or equity hybrids: maximum 8 years (up to 2029)
  • Remuneration (margin):
    • Equity instruments and/or equity hybrids:
Beneficiary typeYear 1Year 2 and 3Year 4 and 5Year 6 and 7Year 8 ff
SMEs2.25%3.25%4.50%6.00%8.00%
Large companies2.50%3.50%5.00%7.00%9.50%
  • Other complementary credit facilities:
Beneficiary typeYear 1Year 2 and 3Years 4, 5 and 6Minimum
SMEs0.25%0.50%1.00%6.00%
Large companies2.50%3.50%5.00%7.00%

Such aid may be granted until 30 June 2022.

In the next post we will detail the eligibility criteria.

Real estate financing pills (1): forward purchase vs. forward funding

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In this article we explain two terms that are becoming increasingly common in the structuring and financing of real estate projects: forward purchase and forward funding.

  • “Forward purchase” is a contract for the purchase of a future building, by virtue of which the developer-seller undertakes to promote the construction and marketing of a real estate project within a certain period of time, and the investor-buyer undertakes to pay a price for this real estate project that has already been marketed, and which guarantees him a certain profitability. The consummation of the purchase is subject to a deadline and to the fulfilment of the stipulations of completion of the project and marketing.

It is clear, therefore, that this formula has advantages for the investor-buyer, as he does not have to cover the construction/insolvency risk of the developer, less knowledge of the project development is required and the purchase agreement is much simpler, while on the other hand, the participation rights in the construction/rental phase will be less extensive and the purchase price will probably be higher. Sometimes a down payment of 5% is also agreed at the signing of the contract.

  • Forward funding, on the other hand, is a contract for the purchase of a future building or the purchase of a future thing, whereby the developer-seller undertakes to promote the construction and marketing of a real estate project within a certain period of time, with financing to be provided by the investor-buyer.

In a forward funding transaction, the parties enter into a purchase and sale agreement with development obligations of the seller at an early stage, often before development work has started and sometimes even before the project has been secured. However, the purchase price, in contrast to the forward purchase, will be paid in instalments depending mainly on the progress of construction (but sometimes also depending on other requirements, such as obtaining the licence, entering into lease agreements, amendment of the building permit, etc.). The last instalment will usually be paid after the usual requirements for the purchase price to be due (registration of the priority notice of transfer; removal of encumbrances from the land, etc.) and after the (main) tenant has taken over the object of the lease (and preferably paid the first rent without reductions) have been fulfilled.

In this case, the developer has the advantage that he needs little or no bank financing, while the buyer – in addition to a higher return – assumes the risk of insolvency and the general risk inherent in construction.

To minimise the risk on the buyer-investor side, not only the due diligence process has to be more detailed but also the sale and purchase agreement has to provide for certain security mechanisms: the seller’s insolvency risk has to be covered; termination rights, if possible, backed by guarantees for the repayment of instalments paid so far, etc. and mechanisms have to be in place to ensure that the requirements for the different instalments of the purchase price can be objectively verified.

The EU Next Generation Plan and its implementation in Spain

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To address the severe crisis caused by the Covid-19 pandemic, the European Union proposed a temporary recovery instrument, the Next Generation EU Plan, endowed with €750 billion. This historic amount will be channelled to member states in two tranches: €390 billion in grants and €360 billion in loans.

These funds aim to rebuild the European economy after Covid-19 and make it more sustainable, digital and resilient. Spain has the option of accessing 140 billion euros, of which 72 billion will be non-refundable. For the time being, the Spanish government will only ask for these 72 billion euros allocated in direct aid. The mobilisation of these funds will be concentrated in just three years, in the period 2021-23, in order to maximise their impact on the rapid reconstruction of the economy, while the loans will serve to complement, subsequently, the financing of the projects underway. In addition to all these funds, €79 billion will be provided by the structural funds and the Common Agricultural Policy for 2021-27.

Spain will distribute Recovery Plan funds in three ways:

  • The Strategic Projects for Economic Recovery and Transformation (PERTE): a new form of public-private collaboration that identifies structural projects with a great capacity to boost growth, employment and competitiveness of the Spanish economy. The first PERTE to be published is the Electric and Connected Vehicle.
  • Subsidies, for the financing of public assets, through competitive calls for proposals. They require public-private financing.
  • Contracts, for the financing of public assets, through tenders. Financing can be 100% public or public-private (concessions).

In July 2021, the Council of Economic and Finance Ministers (ECOFIN) definitively approved the Spanish Recovery Plan, and a few weeks later the Spanish government received the first €9 billion. Among the many specific measures included in the Recovery Plan are to digitise more than one million SMEs, support more than 3,000 companies in their internationalisation, train more than 2.6 million people in digital skills and deploy plans to promote female talent, or install more than 240,000 interactive digital classrooms.