Alternative methods for going public – A new trend

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A special purpose acquisition corporation (SPAC) is a company created to be merged with a private company in order to list on a stock exchange. Six SPACs currently listed on the Toronto Stock Exchange (TSX) raised over $1 billion in 2015 (see below). On July 25 and August 25, 2016, two of them announced their business combination (referred to as a “qualifying acquisition”). 

INFOR Acquisition Corp. SPAC (TSX: IAC.A, IAC.WT) proposed a merger with a new subsidiary of Element Financial Corporation (TSX: EFN), as part of a spin-off (see EFN July 28, 2016 Management Information Circular). It should be noted that, some time ago, after raising significant funding, EFN was listed on the TSX following an amalgamation with a TSX Venture Exchange (TSXV) capital pool company (CPC); MIRA II, a CPC with which Element Financial Corporation merged raised $500,000 from its founders and completed a $250,000 IPO on June 6, 2011. On December 16, 2011, MIRA II completed a qualifying transaction with EFN in accordance with the TSXV policy on CPCs.

Dundee Acquisition Ltd. SPAC (TSX: DAQ.A, DAQ.WT) (“DAQ”) proposed a merger with CHC Student Housing Corp. (TSXV: CHC), a Canadian student housing owner/operator. Following the transaction, the pro forma company would own an interest in up to 20 properties comprising 4,700 student housing beds. In addition, some time ago, CHC completed its stock listing under the TSX’s alternative listing route, i.e. the CPC program (TSXV: CHC.P). 

CPCs and SPACs are both listing vehicles of the TSX Venture Exchange (TSXV) and on the Toronto Stock Exchange (TSX). They have the same objective, which is to help operating companies seeking to obtain a stock listing. However, these vehicles differ significantly. 

A CPC is incorporated by promoters who must first acquire a minimum of $100,000 in common shares (maximum $500,000) at a price of not less than 50% of the IPO share price for the public. In an IPO, the CPC must raise between $200,000 and $4,750,000 from 200 investor shareholders. Conversely, an SPAC will be listed on the TSX if it raises $30 million from 300 new investors. 

Under these two programs, the resulting issuer cannot be listed on a TMX stock exchange if it has entered into an agreement to effect a business combination prior to its IPO. The business combination, if it’s a non-arm’s length parties qualifying transaction, does not require approval from the CPC shareholders. In all cases, approval from the SPAC shareholders is required. Therefore, there is a risk that an SPAC may not complete a business combination, and the target company’s listing may not be realized.

An SPAC must complete its business combination within 24 months of closing its IPO, whereas a CPC has 36 months. If the transaction is not completed within the timeline, the founders generally lose their equity interest, and the remaining funds are returned to public investors.

Typically, if significant capital is needed, the CPC raises it in it’s qualifying transaction. In addition, SPACs will have raised substantial funds in their IPO before the qualifying acquisition is completed. 

In Canada, alternative methods for going public are often used to list a new public issuer, and to raise funds for a corporate issuer already listed or that will be listed. Between 2012 and 2015, 48% of TSX-listed companies entered the TSX through migration from the TSXV, 33% through initial public offerings and 20% through other methods. 

Special Purpose Acquisition Corporations as at July 31, 2016

Company Symb. Date listed
Market cap (C$)
Total funds raised (C$) Prov. Region of preference
Acasta Enterprises Inc. AEF.A 2015.07.30 390,425,000 350,000,000 ON North America
Alignvest Acquisition Corporation AQX.A 2015.06.24 255,903,750 225,000,000 ON North America
Dundee Acquisition Ltd.1 DAQ.A 2015.04.21 111,064,700 100,000,000 ON
All regions
Gibraltar Growth Corporation GBG.A 2015.10.02 100,947,000 104,500,000 ON
North America
INFOR Acquisition Corp.2 IAC.A 2015.05.27 227,700,000 230,000,000 ON
All regions
Kew Media Group Inc. KEW.A 2016.06.13 68,250,000 70,000,000 ON
Canada, USA, UK
Source: TMX Group

On August 25, 2016, announced a proposed qualifying transaction with CHC Student Housing to acquire student housing properties.
On July 25, 2016, announced a proposed qualifying transaction as part of a spin-off of Element Financial Corporation assets.

Claude Désy, M. Fisc., FCPA, FCA
Dunton Rainville