Special Purpose Acquisition Company (SPAC)

SPAC (Special Purpose Acquisition Company) is a company that does not intend to conduct commercial transactions but aims to acquire other companies, which is the primary purpose of its existence.

SPAC’s history dates back to the nineties, when small enterprises were considering ways to avoid traditional IPOs (Initial Public Offering).

Currently, SPACs are on the rise, according to Deal Point data, SPACs raised more than ($75) billion in 2020, Moreover, Harvard business review showed that a remarkable (295) SPACs secured more than ($96) billion in the initial quarter of 2021.

In Egypt, after the issuance of the Financial Regulatory Authority‘s (FRA) Board of Directors decrees No. 140 of 2024 amending the decree No. 53 of 2018 regarding the controls for granting and continuing the license, and the rules for owning shares of companies operating in non-banking financial activities.

And decree No. 148 of 2024 amending decree No. 11 of 2014 regarding the rules for listing and delisting securities at the Egyptian Exchange.

And decree No. 177 of 2024 regarding the controls for granting and continuing the license to companies operating in non-banking financial activities, we will detail in this article the establishment, licensing and trading of SPAC companies.

Incorporation requirements and initial incorporation approval of SPAC which is provisioned according to Law No. 95 of 1992, and under the supervision of FRA

1. The purpose of the company shall be limited to venture capital for the purpose of acquiring ownership ratios in entities or companies.
2. The legal form of the company shall be Joint-Stock company.
3. The issued and paid-up capital of the company at the time of incorporation shall not be less than the legal stated amount of ten million Egyptian Pounds, provided that the capital shall be increase to a minimum of one hundred million Egyptian Pounds within three months from the date of listing the shares of the company in the Egyptian Exchange (EGX).
4. Preparing a feasibility study or the company’s business plan indicating the technical and economic points and objectives sought by the company in accordance with the model approved by FRA.
5. The company shall have an independent headquarters dedicated to practicing the activity and shall have the equipment, technological infrastructure and information systems necessary to carry out the activity.
6. The company must have a certified auditor registered with FRA.
7. The contribution of the financial institutions in SPAC shall not be less than (25%) of the company’s capital and/or the direct or indirect contribution of the qualified investors shall not be less than two-thirds of the company’s capital (66.6%).
8. The number of the Board of Directors members shall not be less than five (5) members, and the Board shall include two (2) independent members and two (2) female members, and it is permissible to consider the female members as an independent members.
9. The cumulative voting method shall be used in the election of members of the Board of Directors.
10. The Managing Director or CEO of the company shall have experience in one of the areas of banking, finance, financial or legal for not less than (10) ten years, after obtaining a college degree, and a personal interview will be conducted at FRA with the Managing Director.
11. Finalize the incorporation procedures within a period not exceeding six months from the date of initial approval, and fulfill all the requirements for obtaining the license within three months at most from the date of registration in the Commercial Register.

Conditions for the registration of SPAC shares

In accordance with the EGX Listing and delisting regulations (Article 7), and the decree of the Board of FRA No. 148 of 2024.

1- The capital increase shares shall be offered in a private offering to qualified investors or financial institutions in accordance with the definition contained in the aforementioned decree of the board of FRA No. 177 of 2024, provided that the information memorandum shall include, at a minimum, the following data:

• General data of the company.
• The expertise of the company’s founders and board of directors.
• Targeted sectors and investment regulations.
• The acquisition investment plan for the target companies.
• The method of acquisition, whether through cash payment, the issuance of credit, or shares exchange.
• The regulatory frame to manage the capital of the company, including funds obtained through the offering of shares.
  Related and connected persons.
• Methods for avoiding a conflict of interest.
• Informing qualified investors that subscribing to the increase of shares means that they accept to trade their shares not exceeding the nominal value, until the publication of the disclosure report in accordance with Article 138 of the Executive Regulation of Law No. 159 of 1981, after the execution of the acquisition or publishing the financial statements of the company for the first fiscal year after its incorporation.

2- The number of shareholders of the company after the subscription shall not be less than fifty shareholders.

3- The percentage of free-float shares shall not be less than 5% of the total shares of the company.

4- The proceeds of the subscription in the capital increase shall be kept with an Egyptian bank, provided that they shall not be used except for acquisition purposes.

5- Trading in the shares of the company shall be limited to the financial institutions and the qualified investors and under the responsibility of the executing brokerage company, until the requirements of Article (7) bis (1) of these Rules are met.

6- A draft of the acquisition plan, including all details related to the targeted company or companies, shall be presented to the Extraordinary General Meeting of the company within six months from the date of listing the company’s shares in the stock exchange. The founders and their related parties shall not be entitled to vote on this resolution. Shareholders who object to the acquisition decision at the general meeting shall have the right to exit the company within thirty days from the vote on this resolution.

7- The company shall execute the acquisition within two years from the date of listing in the stock exchange. The acquisition shall be for 100% of the targeted company or companies, or for a controlling percentage or absolute majority of the capital or voting rights. Subsequently, the acquired company or companies shall be merged into the company or remain as subsidiaries, as determined by the company’s Extraordinary General Meeting in this matter.

8- Following the completion of the acquisition, the company shall publish the disclosure report referred to in Article 138 of the Executive Regulation of the Law No. 159 of 1981, upon its approval by FRA. The report shall detail the company’s plan, the details of the completed acquisitions, as well as the expected operations and the company’s method of maintaining continuous listing with regard to the minimum number of free-float shares and the number of shareholders. Alternatively, the company shall publish its financial statements for the first fiscal year after its incorporation.

Circumstances of delisting the shares of SPAC

In accordance with the final paragraph of Article 53 bis of the Egyptian Exchange Listing and Delisting Regulations, the circumstances leading to the delisting of shares are specified as follows:

• The failure of the company’s extraordinary general meeting to approve the acquisition of the target company or companies within six months from the date of listing the company’s shares in the stock exchange, unless FRA approves a period extension based on acceptable justifications.
• If the acquisition of the target company or companies is not completed within two years from the date of listing the company’s shares in the Egyptian stock exchange, unless FRA approves a period extension based on acceptable justifications.