INTHEBLACK October 2021 - Magazine - Page 17
Although there will not
be any SPAC listings on
the Australian Securities
Exchange (ASX) in the
near future, the ASX is
monitoring the space amid
expectations of a rise in
mergers and acquisitions
led by foreign-listed SPACs.
GETTING SPAC-READY?
For now, the Australian Securities Exchange
(ASX) is holding back. It prohibits stock market
listings of what it terms “cash box companies”,
where cash makes up more than 50 per cent of
an entity’s assets.
Yet, while there won’t be any SPAC listings
on the ASX in the near future, we are likely to
see an increase in mergers and acquisitions
(M&A) in Australia led by foreign-listed SPACs.
Australian entrepreneurs Patrick Grove and
Luke Elliott recently listed the Catcha Investment
Corp SPAC on the New York Stock Exchange,
raising US$300 million (A$400 million) and
indicating they are actively seeking a major
technology company acquisition in Australia.
The volume of capital being raised by SPACs
in the US and Europe will invariably generate
more M&A activity in the Australian market,
says Nicole Pedler, partner at law firm Herbert
Smith Freehills specialising in M&A and equity
capital market transactions.
This in itself may create potential
complications for some Australian companies
should they be targeted by a foreign-listed
SPAC.
In addition to having to negotiate the pricing
and terms of the takeover deal, the companies
will need to be in a compliance-ready state in
order to transition into being a company listed
on an international stock exchange.
The transition process is called “de-SPACing”
and, on average, takes only about three to five
months from announcement to completion.
“Where, if they wanted to get IPO-ready in
Australia, they’d be thinking about the ASX
listing rules, they actually need to get familiar
with the environment of being listed
predominantly in the US,” Pedler says.
“They need to have their accounts in order
and to have enough of a track record of having
the right type of accounts and a level of
diligence around those to be able to be
de-SPAC-ready.
“They’ll also need to have the kind of board
and governance that allow them to be very
quickly listed as well.
“THE STRUCTURE FOR
SPACS IS EVOLVING.
WE ARE DOING WORK
TO CONSIDER THE
OPPORTUNITY
CAREFULLY. WE WILL
LISTEN TO THE
MARKET AND TAKE
A CAUTIOUS
APPROACH.”
MAX CUNNINGHAM, ASX
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“For most companies, they will have to go
through a process of having their accounts
reopened and refashioned to ensure they
comply with offshore accounting standards.”
Jude Lau FCPA, partner audit and assurance
and corporate advisory at HLB Mann Judd, says
that the closest thing to a SPAC in Australia is
when a company is established to raise seed
capital, which then acquires a project and lists
on the ASX.
“The common issues in that space are that,
predominantly, those businesses have
historically not complied with an accrual basis
of accounting. That’s one change that needs to
be adjusted for.
“As an extension of not complying with an
accrual basis of accounting when they used to
prepare their accounts, they never would have
complied with the revenue recognition and
measurement requirements of Australian
accounting standards.
“It does then take time to address all of
those issues. You’re talking about potentially
having to do two to three years’ worth of
historical audits.”
THE ASX IS MONITORING THE SPAC SPACE
The ASX says it is examining “the SPAC
phenomenon” closely.
“Our focus is on achieving the best outcome
for the Australian market and for local
investors,” says Max Cunningham, executive
general manager of listings and issuer services
at the ASX.
“We have had approaches from parties about
our preparedness to consider changing or
waiving our anti-cash box rules to facilitate
SPAC transactions.
“However, the history of cash box companies
in Australia has been poor, and there are
important scale, regulatory and commercial
differences between the Australian and US
markets.
“Nevertheless, the structure for SPACs is
evolving. We are doing work to consider the
opportunity carefully. We will listen to the
market and take a cautious approach.”
intheblack.com October 2021 17