ShaneMcLean.com

Information on legal and business topics from Canadian business lawyer Shane McLean

What is a Special Purpose Acquisition Corporation?

Posted by Shane McLean on June 7, 2009

With many similarities to the TSX Venture Exchange’s Capital Pool Company Program (see my prior post on the CPC Program), the TSX has itself rolled out a program in which it will permit the listing of what are essentially shell companies with lots of cash in them for the sole purpose of finding an acquisition target.  Called a Special Purpose Acquisition Corporation or “SPAC” (note that unlike my post about the CPC program when I joked that nobody calls it a “C-Pick”, in this case people do call it a “Spack”), the TSX has adopted the concept from the United States where this type of program has existed on the more junior exchanges/bulletin boards for years.    

The similarities between the TSX SPAC Program and the TSX Venture Exchange CPC Program are many including (i) the small group of founders with certain minimum investment requirements; (ii) an IPO to raise funds in a shell company and (iii) a defined period of time in which to find a target acquisition.   The biggest difference in my mind is size.  Where a CPC shell can raise as little as $200,000 including both seed capital and IPO proceeds, a SPAC must raise a minimum of $30 Million on its IPO.  The cash commitment on the part of the founders of a SPAC is larger too given that they must hold an equity stake of between 10% and 20% of the SPAC after the IPO.

According to the website SPACAnalytics.com, from 2003 to 2008 there was nearly $22 Billion raised on SPAC IPOs in the United States.  However, as far as I am aware there have been no SPACs in Canada yet even though the TSX opened the program for business in December of 2008.  The TSX is out there at seminars and events talking up the program in the hopes that someone will take the plunge (don’t forget that more IPOs and more listings means more revenue in the form of listing fees for the TSX which is itself a for-profit company).  Unfortunately they rolled out the program in the middle of a recession and it may be a while before anyone is able to raise $30 Million for a shell company IPO in Canada.

For more detail on the program, check out the TSX’s product sheet on SPACs or give me a call.

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One Response to “What is a Special Purpose Acquisition Corporation?”

  1. […]    What is a Special Purpose Acquisition Corporation?  (June 7, […]

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