Finland Has the Means to Become a New North European Hub for SPACs

Authors: Stefan Stellato, Heikki Vesikansa, and Anniina Järvinen

The first de-SPAC transaction in the Nordic countries saw daylight on 3 January 2022, as trading with the shares of the Finnish sustainable indoor climate comfort solutions company Purmo Group Plc started on the Nasdaq Helsinki stock exchange. Purmo Group’s listing was a result of its successful merger with Finland’s first special purpose acquisition company (SPAC), Virala Acquisition Company Plc.

Despite many similarities, there are many reasons for why Finland has beaten its Nordic peers in the race for the first successful de-SPAC. Below, we list 9+1 pros of doing a SPAC in Finland. Will they soon earn Finland the title of the North European hub for SPACs?  

1. No minimum fundraising requirement

Finland’s first SPAC, Virala Acquisition Company Plc, raised EUR 107.5 million in its IPO, and the second Finnish SPAC, Lifeline SPAC I Plc, raised EUR 100 million. However, Nasdaq Helsinki does not have a minimum fundraising requirement, which makes Helsinki an ideal exchange also for SPACs targeting early growth-stage ventures.

2. Continuous trading with SPAC shares

Nasdaq Helsinki’s rules allow trading with SPAC shares throughout the SPAC process. For example, trading is not suspended when the de-SPAC becomes public knowledge but has not yet been completed. This provides investors with liquidity.

3. Investors’ redemption right can be capped to 9% of gross IPO proceeds

Nasdaq Helsinki’s rules require a SPAC to accept redemption requests (from investors opposing a completed de-SPAC) of at least 10% of the SPAC shares, but the Finnish Companies Act prohibits a listed company from holding more than 10% of its own shares. Nasdaq Helsinki’s rules further require the SPAC to deposit at least 90% of the gross IPO proceeds to an escrow account. As a result, the investors’ redemption right is effectively capped to 10% of the total shares and 90% of the funds invested in the IPO. The maximum cash outflow due to redemption is thus limited to only 9% (= 10% x 90%) of the funds invested in the IPO.

This way, Nasdaq Helsinki’s rules strike an ideal balance between investor protection and minimal disruption of the de-SPAC process. Also, the fact that investors may sell their SPAC shares on the exchange throughout the entire SPAC process (see point 2 above) could be expected to reduce the amount of redemption requests. After all, why would investors request the redemption of their shares for 90% of the IPO price if they can sell the shares on the stock exchange for a higher price?

4. Sponsors are allowed to vote for de-SPAC

According to Nasdaq Helsinki’s rules, the de-SPAC needs to be accepted by a simple majority (50%) of votes cast at the SPAC’s shareholders’ meeting. However, if the de-SPAC is structured as a merger or demerger, a qualified majority (2/3) will be required in practice. Importantly, the sponsor is not restricted from voting for the de-SPAC in the shareholders’ meeting.

The sponsor is only restricted from voting for the de-SPAC in the board of directors. This is because Nasdaq Helsinki’s rules require acceptance by the majority of the board members who are independent from the SPAC and its management.

5. Automatic 36-month period for completing de-SPAC

According to Nasdaq Helsinki’s rules, the maximum period for completing the de-SPAC is 36 months from the IPO (unless the sponsor should wish to include a shorter period in the IPO prospectus). There is no need to file an application for extension to have the maximum period. Therefore, any uncertainty that there could otherwise be around obtaining an extension is fully avoided.

6. EU membership broadens target base and facilitates deal-making

As a member of the European Union (EU), Finland is part of the EU’s regulatory framework and common market. As an example, EU regulation provides important tools for deal structuring, among other things, by enabling (tax-neutral) cross-border corporate reorganisations, such as mergers, demergers, and share swaps. Consequently, a Finnish SPAC is in an ideal position to look for targets outside the Finnish borders.

7. Euro currency

Finland is the only Nordic country that has adopted the euro. As the currency is adopted by 19 countries and over 340 million people, it eliminates the currency risk for many non-Finnish investors. Thus, a Finnish SPAC, denominated in euro, may attract more interest among foreign investors.

8. Experience of SPACs

By this date, Finland has had two SPAC IPOs (Virala Acquisition Company Plc and Lifeline SPAC I Plc) and one de-SPAC transaction (Purmo Group’s merger into Virala Acquisition Company Plc). Finland is the only Nordic country with a SPAC IPO followed by a completed de-SPAC. Thus, Finland could provide a more established regulatory and tax landscape for SPACs.

9. VAT deductibility of SPAC costs

The Finnish Central Tax Board has issued a public precedent that confirms a SPAC’s right to deduct value added tax (VAT) on costs incurred before the de-SPAC. These include costs for, among other things, the listing process and de-SPAC preparations. Thus, the ruling provides desirable comfort on VAT deductibility.

A general precondition for VAT deductibility is that the costs are aimed at starting VATable activities. Thus, the SPAC should continue the acquired VATable business itself (in an acquisition of business, e.g. through merger) or start providing VATable services to the acquired company (in an acquisition of target shares). Based on the ruling, VAT deductibility is obtainable regardless of the timing of the de-SPAC or even if the de-SPAC is never completed. As targeted business fields may vary and differ from the published precedent, it may be advisable to apply for a new advance ruling to ensure that a planned SPAC will also achieve the VAT deduction rights.

+1 Is Finland ready for SPARCs?

Special purpose acquisition right companies (SPARC) have been described as a more developed version of SPACs. Unlike a traditional SPAC, a SPARC would not lock in investors’ cash between its listing and de-SPARC transaction. The investors of a SPARC would decide only upon the de-SPARC transaction whether they wish to invest money to receive shares in the SPARC.

Nasdaq Helsinki’s rules on acquisition companies were written based on traditional SPACs, and they do not recognise SPARCs, at least expressly. If the SPARC model starts attracting interest in Finland, potential changes to Nasdaq Helsinki’s rules to enable SPARC listings need to be discussed with the exchange.

Hannes Snellman acted as counsel to Virala Acquisition Company Plc in both its listing and its de-SPAC.