May 9, 2020
27 Iyar 5781
Ms. Anat Guetta, Chairwoman of the Israel Securities Authority: "The terms and principles formulated by the ISA are intended to align the interests of the entrepreneur and the investors, in order to strengthen the mechanisms for protecting investors. We stress that the ISA continues to monitor the lively activity and developments in the market, and we will act to update the investor protection mechanisms, wherever and whenever necessary."
In recent months, several companies have submitted requests to the ISA to publish a prospectus of a SPAC – Special Purpose Acquisition Company. According to this model, the SPAC issues shares to the public and is registered for trading on Tel Aviv Stock Exchange. The SPAC itself has no assets or activity on the date of issue. The funds raised will be used to find a potential investment in a target company, which will be merged with the SPAC.
Investing in a SPAC involves significant risks for investors. Above all, the decision to invest in a company of this kind is largely based on the reputation and ability of the entrepreneurs to find a potential target company and to complete the merger of its activity with the SPAC.
Information about the activity in which the investment will actually be invested is not available at the time of issue, and it is therefore hard for investors to make an informed decision.
The ISA has examined this matter over the past year, including studying similar arrangements in other capital markets, including consultative documents published simultaneously last month by the regulators in the UK (FCA) and Singapore (MAS). The ISA also studied activity of this kind in the US capital market, where the model has existed for several years, and over the past eighteen months has become a central tool for initial issues. Accordingly, the ISA has drawn up a list of principles and threshold terms that will facilitate the grant of a permit to publish a prospectus to issue a SPAC. These terms are mainly intended to strengthen the mechanisms for protecting investors.
These are the main principles and terms for obtaining a permit to publish a prospectus for a SPAC:
Minimum amount to be raised of NIS 400 million (through a share issue only or shares and options for shares).
Participation of institutional investors – who will purchase at least 70% of the issuance.
Minimum investment by the entrepreneur – NIS 40m ("skin in the game").
Up to two years to find a target company and bring in its activity (worth at least 80% of the amount raised).
Until activity is brought in, the proceeds to be invested in solid channels only through an external trustee.
The activity to be brought in must be approved by the general meeting, excluding the votes of the entrepreneurs.
The investment amount to be returned to shareholders who vote against the merger.
Royalties to the entrepreneur – none until the activity is brought in; the ceiling for the entrepreneur's success fee (the "upside" component) is set at 10% of the company's capital after the merger.
Shares held by the entrepreneur are locked-up: an absolute lock-up on the initial investment until the entry of the activity, plus a lock-up on part of this investment for up to six months thereafter; a lock-up of three years after the merger on shares granted to the entrepreneur for bringing in the activity.
A majority of independent directors on the boar, until the transaction is completed to enter the activity.
If no activity is brought in or the entrepreneurs leave during the defined period, all money will be returned to the investors.
Disclosure and reporting to investors according to the law and undertakings included in the prospectus regarding items for disclosure when calling a shareholders meeting to discuss the merger.
The ISA is expected to approve prospectuses from entrepreneurs who have experience of managing the public's money and who meet the specified conditions. The ISA is currently holding talks with the Tel Aviv Stock Exchange to include these principles in its Regulations.