The recent set of results declared by Sacoven PLC indicate that the take off of Special Purpose Acquisition Companies (SPACS) may be slower and more difficult than expected. To date, Sacoven PLC, a dual listed SPAC with a primary listing in London and a secondary listing on the Alt-X exchange in Johannesburg, has failed to execute any acquisitions despite paying £450 000 in investment advisory fees to Vasari Global Limited.

To briefly recap, a SPAC is an empty shell company which is listed on an exchange with intention of identifying and pursuing acquisitions within a defined time period with the capital raised during the listing. SPACs were first introduced in the USA and the initial uptake for these vehicles was slow. However, in the boom years before the 2008 market crash, SPACs grew in popularity and were used for a variety of different purposes. The investment returns of SPACs were generally mixed. However, there were a number of spectacular failures such as the Heckmann Corporation’s (renamed Nuveera) disastrous $625 million investment into Chinese bottled water. In addition to targeted acquisitions, SPACs also offer a cheaper and quicker alternative to IPOs.

In terms of the JSE listing rules, a SPAC must raise R500 million to list on main board of the JSE and R50 million to list on the Alt-X. The SPAC must then complete an acquisition of a viable asset with 24 months of listing (which acquisition is subject of approval by 75% of the SPACs shareholders). If the SPAC completes the acquisition, it will be subject to the JSE listing requirements in all respects. However, in the event that a SPAC does not complete an acquisition of viable assets with the 24 month period, the SPAC must distribute the capital raised, and any interest earned thereon, to its shareholders with 60 days.

Empirical studies in the USA have shown that there is a sweet spot in respect of the timing of the acquisition of the viable asset. If the acquisition is done too early, the investment will often fail as insufficient preparation has gone into the transaction. If the acquisition is close to the termination of the SPAC, the transaction is often the result of pressure on the board to do any transaction before the expiry of the permitted period. Accordingly, as Sacoven listed in the fourth quarter of 2014, it could be argued that it is within this sweet spot but needs to move quickly to acquire viable assets which would justify the £450 000 spent on investment advisory fees. Sacoven has indicated that it has considered a number of investment opportunities presented by Vasari Global Limited but gave no indication as to whether it will pursue any of these opportunities.  

To date, the uptake for SPACs has been slow in South Africa with only one other SPAC (Renergen) having listed (although not as slow as Canada where it took 6 years for the first SPAC to list). Renergen is a player in the alternative energy sector and has indicated that it has a number of alternative energy projects in the pipeline including investments in natural gas, hydro electric power and solar energy.  SPACs offer great potential to the energy sector because SPACs allow a large amount of capital to be raised in a short period of time which is essential for the acquisition and development of capital intensive alternative energy projects. A good example of a jurisdiction where there has been substantial use of SPACs in the energy sector is Malaysia where all of the SPACs listed so far have been in the energy related. In Malaysia, the introduction of SPACs and their usage in the this sector has been viewed as a good way of introducing new and independent exploration and production companies into a sector that has been traditionally restricted to a number of large companies.

There are obvious parallels between the Malaysian energy sector and the South African energy sector, and in particular the reliance on Eskom for the vast majority electricity generation. Accordingly, SPACs offer significant opportunities to the alternative energy sector and can potentially be used to further drive the significant increase in investment into renewable energy projects in the future.

Prepared by Shmuel Moch (Candidate Attorney) and checked by Ashlin Perumall (Senior Associate); Adams and Adams Financial Regulatory Team