The SPACs find an opportunity in Israel | White & Case LLP
The PSPC phenomenon has spread to Israel, where regulators have also laid the groundwork for local PSPCs IPOs.
The Israeli M&A market had a spectacular H1 2021. In the first six months alone, the value of transactions in the country reached $ 28.7 billion, already higher than any annual total on Mergermarket (since 2006).
M&A activity in value 2006 – 2021 [YTD]
Target location: Israel Bidder’s location: Global Sectors: All sectors
Although partly due to strong activity on the high end, activity was also robust in terms of number of deals – there were a total of 109 deals in H1 2021, just below the 118 in total on the whole of 2020.
Special Purpose Acquisition Companies (SPACs) have been a major driver. Given Israel’s prowess in all things tech, it was only a matter of time before the SPAC phenomenon reached Tel Aviv.
Technology is an extremely disruptive industry, and companies that address or even create new markets have the potential to make big money by taking big risks. SPACs attract investors with an appetite for potentially risky and potentially very profitable strategies.
Israel has more startups per capita than any other country, making exploding investor interest and demand for technology-targeting PSPCs a natural fit for the opportunities offered.
In the first half of 2021, the top three places in Israel were claimed by SPAC transactions. Fintech ironSource, a platform that helps game developers monetize their applications and develop and engage their users through multiple channels, was sold by CVC Capital Partners for $ 10 billion to Thoma Bravo Advantage, a check company in white who filed for its IPO at the end of December.
In second place is the Acquisition of REE Automotive for US $ 3 billion, an electric vehicle platform maker, by Nasdaq-listed 10X Capital Venture Acquisition Corp.. Merger of TWC Tech Holdings II Corp. for US $ 1.9 billion with Cellebrite Mobile Synchronization, a data intelligence company. Another notable example in 2021 was the merger of SPAC ION Acquisition Corp. 1 with Taboola.com, a world leader in recommendations for the open web, culminating in the listing of Taboola on the New York Stock Exchange.
Activity in Israel is a spillover from a US trend that defined capital market activity in the first quarter of 2021. While 2020 was heralded as “the year of PSPC,” the US $ 88 billion raised by blank check companies in the first quarter of this year eclipsed the 76 billion US dollars raised last year in full. This volume was increased by 320 after-sales services made public.
Yield-hungry investors are hungry for growth and anything that can make their portfolio perform better. Because they are not operating companies until they agree on a transaction goal with which to merge, PSPC IPOs are expedited, often saving months over to the traditional process. Their financial statements are short and there is no operational risk to disclose. They also forgo the long and expensive investor presentation process required in a regular IPO.
The binge eating in the first quarter was curbed by US regulators who spotted what they see as a common accounting anomaly. In April, the United States Securities and Exchange Commission challenged the classification of PSPC warrants as equity rather than liabilities. Continued in July, the regulator has indicated what it expects from these vehicles for their warrants to be considered equity, which includes the indexation of these instruments to SPAC’s own shares.
The intervention halted the broadcasts as the sponsors prepared to revise their accounting practices. In the second quarter, only US $ 16 billion was raised in PSPC’s global IPOs. While the show has slowed to a relative trickle, vehicles already lifted are actively seeking chords. According to SPAC Research, there are currently 439 listed cash shells in the United States with a total of $ 131.2 billion in the pre-agreement phase.
And they continue to find targets in Israel. The third largest merger and acquisition to date in the third quarter (at time of publication) saw Medtech Acquisition, a PSPC, pay US $ 625 million for Memic Innovative Surgery, a company dedicated to the transformation of surgery robot-assisted with its exclusive technology. The second largest transaction was the acquisition by SPAC Healthcare Capital Corp. Alpha Tau Medical, a developer of alpha cancer radiation therapy, for US $ 600 million.
All of these PSPCs that are recovering Israeli assets are US registered cash shells. But that could be set to change.
In May, as U.S. issuance slowed, the Israel Securities Authority (ISA) established ground rules to open the Tel Aviv Stock Exchange to local PSPCs, balancing demand from private companies to access this route. accelerated fundraising with investor protection.
Among its rules, the ISA requires sponsors to have at least 40 million shekels ($ 12.4 million) of their own venture capital, the skin of the game to align their interests with those of third-party investors. A minimum of 70% of a SPAC IPO must be accounted for by institutional investors, a relatively high threshold.
Israel’s minimum SPAC bid must also be above NIS 400 million ($ 123.7 million) and investors are guaranteed their money back if they later vote against acquiring the target company once the target is hit. designated.
The United States will continue to be the primary location for PSPC fundraisers that will eventually merge with promising Israeli tech-focused companies; the brand association, kudos, and free publicity that come with a Nasdaq listing will likely guarantee this result.
But with a constant flow of transaction opportunities and with regulators laying the groundwork for local listings, smaller-sized cash shells that aim to accelerate the growth of local tech companies will surely become a feature of the PSPC landscape, in Israel and beyond. elsewhere.