{"id":7984,"date":"2021-07-29T18:34:56","date_gmt":"2021-07-29T18:34:56","guid":{"rendered":"https:\/\/nmsconsulting.com\/7984\/the-cultural-webs-impact-on-transformation-copy\/"},"modified":"2022-04-20T00:43:50","modified_gmt":"2022-04-20T00:43:50","slug":"spac-consultants-insight","status":"publish","type":"post","link":"https:\/\/nmsconsulting.com\/cross-border-transactions-are-spacs-a-good-option\/","title":{"rendered":"Are SPACs a Good Option? | Consultant Insights | NMS Consulting"},"content":{"rendered":"

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Foreign targets are looking to merge with U.S. based SPACs to have access to the liquidity and efficiency present in the U.S. market.<\/em><\/span><\/p>

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The interest in SPACs outside of the US has been strong, and it is a result of an \u2018overflow\u2019 effect where the US interest in SPACs spilled over into other countries.\u00a0 Interest in Europe is very high currently due to the receptive regulatory environment there, and the ability of a European SPAC to operate in a less-crowded market compared with the US.\u00a0 Specifically, Amsterdam has attracted several SPAC IPOs to date this year, because its regulatory rules are very similar to the US.\u00a0 Frankfurt is showing growth, but the legal structuring questions for SPACs in Germany present a hurdle.<\/span><\/p>

The types of opportunities present are early-stage companies with significant intellectual property or growth rates serving as acquisition targets.\u00a0 These foreign targets are looking to merge with U.S. based SPACs to have access to the liquidity and efficiency present in the U.S. market.\u00a0 These companies have been reaching out to us with interest in a SPAC, as they want to leverage our domestic and international experience to ensure a successful transaction.\u00a0<\/span><\/p>

One example of a cross-border transaction was Netfin Acquisition Corp., a Nasdaq-listed SPAC, combining with Triterras Fintech Pte Ltd.\u00a0 This was an outstanding business combination, as Triterras has one of the world\u2019s largest commodity trading and trade finance platforms, and the history of the Netfin team suggests they will be able to grow this platform exponentially and efficiently.\u00a0 These kinds of synergies are what make cross-border SPAC transactions interesting.<\/span><\/p>

However, it is important to note that a potential risk and challenge for the target company is the substantial amount of time and resources for matters such as accounting and reporting.\u00a0 Also, SPACs must deal with complex valuation issues, risk of personal liability for the sponsors and board directors, and other regulatory requirements.\u00a0\u00a0 Another risk is that the SPAC management team members are professional investors, but sometimes do not have expertise in the specific market segment in which the target company is focused.\u00a0 This can result in misaligned goals.<\/span><\/p>

More key challenges are cultural transformation and operational integration, as two separate entities from different countries will be combining to operate as one public entity.\u00a0 Becoming and operating as a public entity presents a completely different atmosphere for the target company, and can lead to significant changes.\u00a0<\/span><\/p>

The regulatory environment is key, as we witnessed recently in the US.\u00a0 The tightening of regulations around SPACs has caused a decline in interest and transactions domestically for the time being.\u00a0 Regulations can change at any given time, so it is important to stay current with governmental entities and their stances on SPAC transactions.\u00a0 Market conditions do also play a significant role.\u00a0 As we saw earlier this year in the US, SPACs were getting tremendous investor interest for several months, but this interest has waned and now many SPACs are trading far below the prices they were at just a few months ago.<\/span><\/p>

In regard to tax implications, we strongly advise legal, tax, and audit professionals to be hired during the SPAC process, to review all potential tax liabilities.\u00a0 Cross border deals are made much more difficult specifically due to tax laws, as well as due to regulatory rules.<\/span><\/p>

Along with the challenges and risks mentioned earlier, I believe it is imperative that the sponsors are carefully vetted by potential investors.\u00a0 Due diligence is a tremendously important tool when determining whether to invest in a cross-border SPAC.\u00a0 Until the De-SPAC process takes place, an investor is basing their decision solely on the SPAC sponsors\u2019 history and track record in a different country.\u00a0 Meeting with the sponsors, discussing philosophy and long-term strategy, are all key components of ensuring a successful deal.\u00a0 To best maximize opportunities and manage challenges, we suggest sponsors and investors identify advisors and other service providers to help during the process, as it is better to invest in the proper preparations now, rather than must unwind or run into significant hurdles later.\u00a0\u00a0<\/span><\/p>

How NMS Can Help<\/strong><\/span><\/p>

NMS Consulting advises corporate clients on creating value through SPACs by drawing upon our team\u2019s extensive transactional expertise.\u00a0 Our services for target companies who are seeking to be acquired by a SPAC include:<\/span><\/p>