NOTIFICATION OF SEC EXPOSURE OF NEW RULES ON SPECIAL PURPOSE ACQUISITION COMPANIES (SPACs)
The Securities and Exchange Commission of Nigeria, in its bid to build and further enhance the Nigerian Capital Market, recently exposed new Rules on Special Purpose Acquisition Companies (SPACs).
A SPAC is a public company with no commercial operations, assets or products that is formed strictly to raise capital through an initial public offer (IPO) for the purpose of merging with or acquiring an existing company (Qualifying Acquisition). SPACs have gained prominence in other countries in recent years as it provides an alternative means for companies to raise capital, as opposed to the traditional IPO..
ADVANTAGES OF SPACS
- Considerably quicker process than an IPO
- Relatively easier to prepare financials and prospectus, since the company is not operational
- A viable tool for raising capital for acquisitions
- Experienced management and promoters is a key requirement
- Promoters and management are prevented from selling their shares in the SPAC until at least 6 months after the acquisition is consummated
6 KEY POINTS TO NOTE ABOUT THE PROPOSED SPAC RULES:
| Particulars | Regulation | |
| 1 | SPAC Eligibility | The Commission shall consider the suitability of the registration of the securities of a SPAC on a case-by-case basis, taking into consideration any factor, including but not limited to the following: a) Incorporation as a public company under the Companies and Allied Matters Act; b) Cognate experience and track record of the promoters and management team which will include experience in any of the following fields: SPAC’s transactions; private equity; business combinations; fund management; merchant banking; c) Nature and extent of the management team’s compensation; and d) The target qualifying acquisition has not been identified |
| 2 | IPO Offer size | A SPAC IPO issue size shall not be less than N10 Billion. |
| 3 | Offer Period |
The IPO shall be open for at least three (3) working days and not more than ten (10) working days. The method of offering of SPAC securities shall comply with the methods of offering of securities prescribed under the ISA 2007 or as amended and SEC Rules and Regulations, provided however that the public offering by a SPAC for the purpose of listing on a SEC registered or recognized securities Exchange such as NASD Plc shall only be made through an issue of new securities and not by an Offer for Sale of securities. A SPAC shall file its SEC approved Prospectus with the relevant Exchange such as NASD Plc, along with any other information/document required by the Exchange regarding the intended qualifying acquisition. |
| 4 | Documents Needed |
a. A SPAC Prospectus. b. All other general registration requirements for public offer as stated in the Rules and Regulations of the Commission. c. The offer document shall contain all material information which are true, correct and adequate to enable the investors take an informed investment decision. |
| 5 | Management of Proceeds |
The net proceeds shall: i. Only be utilized for the purpose(s) stated in the approved offer documents. ii. Be domiciled in an interest-bearing escrow account opened and maintained specifically for that purpose with a Custodian. iii. At least 90% of the gross proceeds of the IPO shall be deposited in the escrow account not later than 24 hours after approval of allotment. iv. The offer documents shall disclose how the amounts deducted from the gross proceeds raised will be utilized. |
| 6 | Investment/Acquisition Timing |
The issuer shall complete the Qualifying Acquisition within the timeframe disclosed in the offer document but not exceeding thirty-six (36) months from the date of the close of the IPO. If the Qualifying Acquisition is not carried out within this period, the escrow account will be liquidated, and funds returned back to the investors. |
Find the link to the SPAC Rules here .