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New Framework for SPAC Listings in Switzerland

In this Chambers Expert Focus article, Dr Robert Bernet and Dr Peter Kühn, of VISCHER AG, explain the Swiss Financial Market Supervisory Authority's approval of a new regulatory standard at the SIX Swiss Exchange and how it could help the country to become a key player in the SPACs and De-SPAC transactions space.

Published on 31 March 2022
Dr Robert Bernet
Ranked in 1 department in Chambers Europe 2022
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Dr Peter Kühn

Switzerland's revised listing requirements for SPACs

SPACs (or "blank cheque companies") are not a new concept, particularly in the US. They are essentially listed shell companies seeking to deploy the IPO cash proceeds through the acquisition of, or a business combination with ("De-SPAC"), one or more promising private companies in a designated field to be identified by the SPAC sponsors within a predefined timeframe of usually one and a half to three years, thereby taking the target company public. Accordingly, SPACs provide for additional investment, financing and exit opportunities.

SPAC investors, while initially buying into a cash box without an operating business, are protected by the right to vote on any De-SPAC transactions and a redemption right (at least if they vote against a proposed De-SPAC). The bulk of the IPO cash proceeds (less costs and plus or minus negative or positive interest and permitted low-risk investment proceeds) sits in an escrow account with a supervised Swiss or equivalent foreign financial institution (usually a bank) until the completion of the De-SPAC (failing which, the SPAC would have to be dissolved and liquidated, and the convertible bond mandatorily repaid).

Prior to the implementation of the new self-regulatory framework by the SIX, as sanctioned by FINMA, Swiss SPACs required various exemptions (on track record, historic financials, minimum equity, etc) under the SIX listing rules (LR) and directives. However, the Swiss regulators were ultimately against proceeding in this manner. Now, the revised LR (Article 89h-89q) and SIX directives as well as the new SIX Directive on the Listing of SPACs (DSPAC) and the dedicated SIX Standard for SPACs provide a safe, and successfully tested, framework for SPAC listings in Switzerland.

"The Swiss Takeover Board generally seeks to facilitate the relevant capital market transactions while safeguarding the interests of the market."

Specifically in Switzerland, instead of the issuance of IPO shares, SPACs can also be structured through convertible bonds, thereby not only bypassing certain challenges under Swiss corporate law regarding the acquisition of treasury shares (generally capped at 10% of the nominal share capital) if the De-SPAC is voted down, but also avoiding the 1% Swiss stamp duty that applies when raising equity capital in excess of CHF1 million.

The SPAC, which must be a Swiss stock corporation, will usually also issue warrants attached to its IPO shares that trade separately.

Another important feature of Swiss SPAC transactions is the qualified offering and listing prospectus pursuant to the Swiss Financial Services Act (FinSA, and its implementing ordinance, FinSO). This is required to contain certain additional information aimed at enhancing investor protection. As a rule, any person who makes a public offer in Switzerland for the acquisition of securities or who seeks the admission of securities to trading on a trading venue must first publish a prospectus. In addition to general information on the issuer and the securities offered and applied for being listed (see Article 35 et seq of the FinSA and FinSO annex 1), a SPAC prospectus must include information on:

  • the key players with respect to the SPAC (such as the founders, sponsors, management, board of directors, lead bank);
  • possible conflicts of interest;
  • the dilution of public shareholders;
  • the escrow arrangement (see Article 3, DSPAC);
  • the De-SPAC;
  • the lock-up agreements; and
  • the liquidation preference (see Article 4, DSPAC).

Furthermore, in addition to an exemption from the mandatory tender offer duty by way of a “selective opting-out clause” to be included in its articles of association, the SPAC must seek from the Swiss Takeover Board (TOB) an order on the exemption of its possible buy-back of own shares from the Swiss takeover rules if the De-SPAC is rejected by many shareholders who then redeem their shares. The TOB generally seeks to facilitate the relevant capital market transactions while safeguarding the interests of the market; ie, the public shareholders at large.

Once listed, the general requirements for maintaining the SPAC listing apply (see Articles 49–56, LR and the SIX directives); in particular:

  • regular financial reporting;
  • ad hoc publicity; and
  • reporting of management transactions (including those by the sponsors and founders until one month after lapse of the lock-up).

The same goes for the adherence by the SPAC to the Swiss say-on-pay rules; capital markets provisions, such as the prohibition of insider trading and market manipulation; and applicable corporate governance standards.

An overview of the De-SPAC transaction process in Switzerland

With regard to De-SPAC transactions, the SPAC board must obtain a fairness opinion, which is otherwise not generally required, at least in private Swiss M&A transactions. The SPAC must prepare and publish in an ad hoc manner a shareholder or bondholder information document in preparation of the investors' vote on the De-SPAC, specifying, inter alia:

  • the acquisition target(s);
  • detailed financial information;
  • information on corporate governance, change of control and defensive measures; and
  • the main parameters of the De-SPAC transaction (see Article 5, DSPAC).

Within three months of the successful De-SPAC, the SPAC must apply for a change of the SIX regulatory standard. Furthermore, unless the target already had recognised financial reporting in place for at least three financial years, the SPAC will be subject to tightened financial reporting obligations under International Financial Reporting Standards or Generally Accepted Accounting Principles (the only permissible reporting standards for SIX-listed SPACs) through mandatory quarterly reporting for two full business years.

Finally, the SPAC sponsors, founders and members of its management and board of directors are required to enter into lock-up undertakings for at least six months following the De-SPAC.

Outlook for SPACs and De-SPAC transactions in Switzerland's legal market

With just one SPAC listed at the SIX, it is probably too early to judge whether SPACs will find yet another home in Switzerland. Following the oversubscribed and seemingly smooth listing and (albeit apparently not overenthusiastic) start of trading of the first Swiss SPAC in December 2021, it remains to be seen whether Switzerland and the SIX, respectively, after doing their regulatory homework, can catch up with their rivals not only in the US but, first and foremost, with the likes of Amsterdam, Frankfurt and the Nordics, which are spearheading the European SPAC landscape.

Certainly, the usual Swiss trumps – such as a robust yet flexible legal framework, political stability, reliable institutions, high-standing infrastructure in all respects, availability of venture and other capital, highly educated manpower, and overall a sound financial centre and vibrant start-up culture – will count at some point.

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