What are SPACs?
The Special Purpose Acquisition Company (SPAC) is a special purpose entity, established by investors, that raises money through an initial public offering (IPO) in order to merge with or acquire another business. The ultimate goal is:
1. to raise sufficient funds to acquire the target company, and
2. to list the target entity on a stock exchange.
The IPO allows the SPAC to have sufficient funding to acquire a target company. Once the target company is selected by the management team of the SPAC, the shareholders of the SPAC must approve the acquisition of the target company. After the acquisition, the SPAC and the target company can either merge or the SPAC remains the listed holding company of the target company.
This structure has certain benefits for both investors, as well as the target company.
Why establish a SPAC in Luxembourg?
Luxembourg offers a variety of solutions to establish SPACs. This flexibility has made Luxembourg a globally leading domicile for holding company and funds. It is today the second largest investment fund centre in the world after the United States and the largest fund domicile in Europe with currently almost EUR 5 trillion of assets under management. In addition, funds established in Luxembourg can be more easily distributed within the EU on the basis of existing passporting rights under the alternative investment fund manager’s directive.
Establishing a SPAC in Luxembourg:
There are different fund types and companies in Luxembourg suitable for a SPAC. Depending on the needs of investors and promoters, you can choose the most suitable type:
- SOPARFI: (Financial holding company or sociéte de participations financières). Due to its flexible financing policy, its structural benefits, its lack of investment restrictions and its advantage in accessing treaty benefits, the SOPARFI has taken on a central role in the structuring of cross-border transactions around the world and is used by multinational corporations, sovereign wealth funds, investment funds, as well as family offices.
- SIF: (Specialised Investment Fund) is a more flexible investment fund that is available for all asset classes and investment strategies. It is a supervised corporate vehicle, reserved for well-informed and professional investors. A low level of diversification is required, and the SIF can also be set up as an umbrella fund. The SIF may also qualify for the AIFMD passport, provided the conditions are met. The SIF is:
- supervised by the CSSF.
- reserved for well-informed and professional investors,
- requires a low level of diversification,
- can be set up as an umbrella fund.
- may also qualify for the AIFMD passport, provided the conditions are met.
- SICAR: (Investment Company in Risk Capital) is also a supervised investment vehicle, which has the principal purpose of investing in risk-bearing assets. The SICAR is not subject to any diversification rules but is restricted to well-informed and professional investors. The SICAR may also qualify for the AIFMD passport, provided the conditions are met. The SICAR is:
- not subject to any diversification rules,
- restricted to well-informed and professional investors,
- may also qualify for the AIFMD passport, provided the conditions are met,
- interesting fiscal regime and double tax treaty access.
- RAIF: (Reserved Alternative Investment Fund) was introduced in 2016 and has been a highly successful fund type. It is structurally similar to the SIF or SICAR regime but is not subject to direct supervision by the CSSF. The RAIF can also be set up as an umbrella structure. The RAIF however has to appoint an AIFM (Alternative Investment Manager) in Luxembourg, which itself is regulated by the CSSF, but can therefore benefit from the AIFMD passport.
- Special Limited Partnership (SLP or SCSp) and Common Limited Partnership (CLP or SCS) are highly flexible fund structures that are not supervised. The limited partnership agreement (LPA) is the main document organizing the functioning of the partnership, which gives the fund the contractual flexibility to organize the structure of the fund. This fund type is not restricted to any asset type and not subject to any risk diversification rules. This fund type is tax transparent.
Fund or company for a SPAC?
Whether to choose a fund or company form is a difficult question and depends on the overall structure of the transaction. Luxembourg offers the possibility to establish the SPAC as an investment fund or as a corporate vehicle, depending on the most suitable structure from an investor and acquisition perspective.
How long will it take to establish a SPAC in Luxembourg
The length of establishment depends on whether the fund is a supervised or non-supervised fund vehicle. Whilst a non-supervised investment vehicle can be set up within 2 weeks, a supervised vehicle can be established within 2-4 months, depending on the complexity of the fund structure and its investment policy.
Which structure is the most popular for SPACs?
The SOPARFI, in the form of a public limited company (Société anonyme or S.A.), still remains the most popular financial holding company for IPOs and for acquisitions, due to its structuring flexibility and its double tax treaty access.
However, most recently the Special Limited Partnership is increasingly the first choice when establishing a fund structure for an acquisition. This is due to its features, allowing it to be highly flexible and established within a short time frame:
Special Limited Partnership:
- No minimum capital required.
- Establishment within 2-3 weeks.
- No regulatory approval for the launch of the fund required.
- Unsupervised fund.
- Appointment of regulated AIFM is not mandatory, if sub-threshold (below EUR 100 Million).
- EU passporting possible through AIFM.
- No Custodian required, if sub-threshold.
- Tax transparent fund.
- Can invest in any asset type.
- High contractual flexibility.
What are the costs of establishing a SPAC in Luxembourg?
As Luxembourg offers a variety of different solutions, this greatly varies between the solution chosen and the service providers used to service the fund or the company. Setting up a fund which is not supervised, is less costly than a supervised fund.
The most popular structure, the SOPARFI can be incorporated within only 2-3 days after opening the bank account and depositing the minimum share capital of EUR 12,000. The notarial fees typically amount to EUR 1,600 – EUR 1,800. Upon incorporation before a notary the SOPARFI has legal personality and can enter immediately into legally binding agreements, such as a domiciliation agreement with a corporate services provider, providing the SOPARFI with a registered office.
In order to establish a Special Limited Partnership, we typically incorporate a SOPARFI, acting as GP of the SLP. This would involve the same costs as the establishment of the SOPARFI. The SLP cost would then only depend on the form of constitution (private deed or notarial deed). Once the LPA is executed, it can be registered with the Luxembourg Trade and Companies’ Register.
(i.)Establishment of the SPAC (SOPARFI, SLP, or another fund).
(ii.)Domiciliation, central administration and accounting of the SPAC.
(iii.)Provide advisory services on the listing of the SPAC.
(iv.)Tax consultancy services with respect to the most suitable structure.
(v.)Reporting and registration services.
Reach out to us, to learn more about the different Luxembourg structures suitable for SPACs.