The Israel Securities Authority (ISA) laid out on Sunday the terms according to which special purpose acquisition companies (SPACs) can be set up in Israel, something that wasn’t possible until now because of regulatory hurdles. The terms aim to protect investors, the ISA said.
The ISA set out the rules after it was approached by a number of companies interested in publishing a prospectus for the setting up of SPACs in the Tel Aviv Stock Exchange.
SPACs, also called “blank check” companies, are a form of a shell company set up by an entrepreneur, called a sponsor, for the specific purpose of raising money through an initial public offering of shares to acquire or merge with another company — this one with operations — which is looking to go public via a reverse merger.
SPACS, which took off last year in the US and globally, have provided private companies a popular and alternative avenue to go public.
The Tel Aviv Stock exchange does not currently allow SPACs because its regulations, decades ago, say that companies can issue shares on the exchange only if they have an operational track record of a period of a year, or if they raise over NIS 200 million ($61 million).
“The terms and principles formulated by the Authority are intended to create an equivalence of interests between the entrepreneur and the investors, to strengthen the mechanisms for protecting the investing public,” Anat Guetta, the chairwoman of the ISA, said in a statement.
Among the terms set out: The ISA will allow sponsors to raise a minimum of NIS 400 million ($123 million) through an offering of shares only or shares and stock options; the entrepreneur setting up the SPAC will have to invest at least NIS 40 million into the venture; and at least 70% of investment into the SPAC must come from institutional investors. SPACS will have a period of up to two years to merge with a target company, and the funds raised till then will held and invested by an external trustee.
A general assembly will have to approve the mergers, and shareholders that oppose the merger will get their funds back. The ISA also set out limits regarding the benefits to the entrepreneur (or the sponsor of the SPAC) and for how long they have to hold onto their stake in the merged operation.
The authority is now holding talks with the Tel Aviv Stock Exchange to update its regulations, the statement said.
“Investing in a SPAC involves significant risks for the investing community. In particular, an investment decision in a company of this type is largely based on the reputation and ability of the entrepreneurs to locate a potential investment in a target company and execute a transaction to merge its activities in a SPAC,” the ISA said in the statement.
Information about the activity in which the money will be invested does not actually exist at the time of the issuance and therefore the investor will have difficulty making an informed investment decision, the statement said.
The authority said it has closely examined the issue over the past year, including regulations governing other capital markets.
The authority will continue to monitor developments on the ground and make updates to the investor protection mechanisms as needed, “wherever and at any stage,” Guetta added.