Regulatory Policy for SPACS

Regulatory Policy for SPACS Value Creation by Private Equity Funds- a brief comparison • On average over 11% returns (FT, 2019, Jonathan Ford) • Biesinger et al (2020) - 31% financial engineering input - 51% governance engineering input - 72% strategic/growth input Demand Side Developments Based on Rodrigues et al, 2020: - Exit rights: On the rise - Voice: Phasing out Concluding Thoughts/Unresolved Issues Purpose of regulatory policy: 1. Long-term value creation by promising small companies? 2. Relational corrections for market failures with the above purpose in mind? EURONEXT and SPACS EURONEXT: The Leading Pan European Exchange • 1,850 companies listed on Euronext markets • €5.1 Tn of domestic market capitalization • A European presence in 15 countries, including 7 listing venues • 6,200+ active institutional investors • Home of the largest and most well-known European companies: 29 components of Euro Stoxx 50 • #1 stock exchanges in Europe for tech companies with 670 Tech companies listed • #1 Exchange in Europe for SMEs with 1,400+ SMEs listed • Single Order Book • Single Trading Technology • Single Liquidity Pool • Single Data Feed • Single College Of Regulators • Harmonized Rule Book • Federal Model US SPACS: Market Showing Clear Signs Of Cooling-Down - Number of SPAC listings in 2020 were 248 and in 2021YTD an incredible 296 compared to 2019 it is an increase of 320% increase in activity - Average deal size in 2020 is €333m and in 2021YTD is €320 - Since 2005 US SPAC listings have successfully raised over $248bn. - In 2021YTD US markets raised $138bn in IPO proceeds and 70% of which are attributable to SPAC listings. - Target sectors in US in 2021: ∼ (1) Technology M&A and ∼ (2) Healthcare (€16.8bn vs €2.8bn). - Technology and Healthcare acquisitions are the trend in the deals for 2021. Recent US SPAC News Flow Impacting General Sentiment Issues concerning US SPAC Listings and regulatory intervention and SPAC Evolution: • Financial Projections o Due to the fact that De-Spacing is classified as a merger, companies can publish forward looking statements during the De-SPAC process whilst being protected from lawsuits. Not the case in a typical IPO. Sources close to deals say this can be of benefit to pre- revenue companies allowing them to articulate future projections. The SEC is currently investigating this "benefit". Notable transactions are Momentous, a space transport company projecting $4bn of revenues by 2027. The deal is currently under investigation by the SEC • Financial Reporting Changes o The SEC is implementing changes as to how warrants relating to the SPAC structure are classified on the balance sheet. Previously the warrants simply sat as Equity but will now be classified as a Liability. This restatement of financials could result in many SPAC's posting paper losses • Reduction in Listings and Pipe funding o April 2021 has been a slow month in terms of US SPAC listings. With $138bn of current SPAC funds seeking acquisition from 427 SPAC's* this is likely reducing the flow of deals. SPAC mergers have also slowed as PIPE funding has reduced as investors begin to exercise caution • Pershing Tontine Holdings, the SPAC ran by Bill Ackman acquiring 10% of Universal Music Group. This deal will be completed through what is known as a Special Purpose Acquisition Rights Company (SPARC). The SPARC intends to issue rights to acquire common stock in the SPARC for $20.00 per share to PSTH shareholders ("SPARs") which can only be exercised after SPARC enters into a definitive agreement for its initial business combination. 12 SPAC Listings On Euronext So Far This Year • In Europe, the prominent since 2005 had been the closely by Borsa Italiana and Euronext • However, the unfavorable regulation in the UK (currently under review) has reduced its appeal and it may not be able to sustain the new SPAC trend to compete with Euronext or the US • Instead Euronext, with its favorable regulatory environment and current market strength, is expected to be the new listing venue of choice for the European SPACS ecosystem Recent Euronext SPAC listings Date Issuer Do Space? 28/05/2021 Accor Acquisition Co No 14/05/2021 Hedosophia European Growth REVO S.p.A 21/05/2021 29/04/2021 No No 26/03/2021 Pegasus Acquisition No Co EFIC 1 No 12/02/2021 ESG Core Invest 12/09/2020 2MX ORGANIC S.A No 11/19/2020 Dutch Star No Companies TWO No Business Combination Pending Business Combination Pending Business Combination Pending Business Combination Pending Business Combination Pending Business Combination Pending Business Combination Pending Business Combination Pending Business Combination EURONEXT Is The Venue Of Choice For European SPACS EURONEXT Offering Structure Units are composed of a share and a warrantor (more commonly, a fraction thereof). Euronext and UK London Stock Exchange EURONEXT US allow for more flexible structure compared to LSE Governance Governance structure refers Structure to Shareholder right and redemption option, Shareholders right in US and Euronext are high due to the possibility to vote on the BC as well as the redemption possibility. However, in the UK investors do not have right of voting on the acquisition and do not have the redemption option. Close to 20% of Sponsors initial Capital Post the amount, depends Ipo on the SPACS structure, Current SPACS show a more balanced and investor friendly 'sponsor take structure (step up) Minimum Fair US exchanges Value Of The require that the target company Target must have a Company "minimal fair value accounting for 80% of the trust UK London Stock Exchange EURONEXT Process Listing Location Despacing amount. Not the case in Europe allowing management to have more flexibility on Of SPACS Euronext** can be considered like IPOs and therefore allowed to continuously trade, which replicates the US structure. On LSE, SPACS are considered cash shells which are not eligible for listing on the Premium segment of the Official List and are treated under reverse takeover rules. This suspends the trading of the shares when target is acquired and need to be readmitted for trading sheer Of The quantum of SPAC listings in the US and amount of capital seeking acquisitions puts incredible pressure on sponsors to deliver. Steady SPAC listing numbers in UK London Stock Exchange EURONEXT Europe allows sponsors to be more selective whilst still having an incredible array of business combination opportunities A change in Accounting accounting Policies Relating To policies from the SEC in the US Spacs will mean that warrants, which allow early investors and management to buy shares at a later date, will now be classified as liabilities on the SPAC balance sheet UK London Stock Exchange Euronext Amsterdam - Most Favorable Environment For EU SPAC - Euronext Amsterdam provide companies access to a strong local and the international ecosystem and access to international capital - The listing regime of the Netherlands is attractive for SPACS as they are assessed with the IPOs rules - SPAC sponsors is required to be transparent with clear information and communication Netherlands Regulatory Framework Euronext Amsterdam and the AFM do not provide specific market regulation for SPACs, instead they are treated as regular IPOs. Main criteria are the following: 1. For the Euronext Amsterdam market issuance of SPACs are treated as IPOs, therefore continuous trading is allowed like in the U.S 2. Costs of the SPAC are usually borne by promoters and by 1% of the total proceeds 3. Usually promoters do not perceive any salary or management fee 4. Shareholders vote on Business Combination, seeking the majority of 70% approval 5. Shareholders are allowed the redemption option 6. Structure of the financing and the units are flexible in the Euronext Amsterdam market, allowing for replicating U.S. SPACS 7. Euronext has the reputation of home to international companies. also makes it a more attractive venue than its European rivals, making it the best SPAC venue for European targets Advantages & Risks Of SPACS - Advantages ∼ Quicker route-to-market. SPACs take 3 months to prepare and execute, compared to 12-18 months for a regular IPO. M&A process shorter and more time-efficient. ∼ Opportunity for smaller companies. No IPO threshold for SPACS. ∼ Growing pool of capital. Institutional investors are becoming more open to SPACS and PIPE transactions, providing target companies a wide variety of available funding. ∼ Flexibility and protection for investors. Redemption option and shareholders approval. ∼ Certainty regarding valuation. Target company is less reliant on market sentiment. The merger consideration (and the valuation for the private company) is set when the merger agreement is executed ∼ Founders of target company remain in control. Similar to IPO, founders remain in control. SPAC therefore more attractive than selling to Private Equity. ∼ Lower cost of equity. Compared to traditional IPO, the total costs for the target company to become public are substantially lower due to lack of regulatory and documentation requirements at listing. - Risks • Investing on the track record of the Sponsors. Investors are investing in the track record and reputation of the managers, providing a certain level of uncertainty and dependency. • Uncertainty cash availability. Use of the redemption option will decrease available cash for the transaction. If the sponsor is unable to attract new investors to replace that capital, the transaction could possibility not be finalized. • High pressure on Sponsors & SPAC management. The 18-24 months window before investors will redeem their investment in case of a "no-deal" puts management under severe time pressure. • Conflict of interest between SPAC sponsors and shareholders. Given that sponsors generally receive the 20% of SPAC's shares for nominal compensation, sponsors may profit even if a future acquisition turns out to be unsuccessful. • Public company readiness. A target company in a SPAC merger has shorter time to prepare itself for being a public company (Governance, Accounting, Legal, Compliance) This potentially results in damaging the reputation of the public capital market. • Investor & shareholder distribution. Target company will have to invest more time from listing to create optimal shareholder distribution and create investor appetite. KEY BUILDING BLOCKS FOR SUSTAINABLE SPAC MARKET IN EUROPE • Sponsor Quality o Track record and reputation of Sponsor teams and their ability to perform on expectations. o Knowledge and expertise of sector/industry that is being targeted. o Investor network and global reach (Private equity firm / Family Offices / Hedge Funds) • Quality of investor base o SPACS mostly suitable for professional/institutional investors o Good balance between committed long-only funds and hedge funds. o Quality of investors participating in PIPE transaction following de-SPAC • IPO readiness of targets o Governance, Accounting/Financial, Regulatory/Compliance, Investor Relations o Fulfilling typical market standards and practices, strategic, commercial and operational • Secondary market trading o Trading in SPACS (units, shares, warrants) require attention and dedication to facilitate orderly and transparent market. o Education of wider (non-professional) investor community on how to price and trade SPACS is required. • Harmonization of rules & regulatory framework o More harmonization of regulatory framework and market practices stimulating European SPAC market. o Constant development of SPACS requires constant education of market operators and regulators.