Legal innovation and industry-driven value of SPAC listing

By Fan Xingcheng, Dentons
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The special purpose acquisition company (SPAC) is an innovative method of listing that integrates the characteristics of many financial products, such as private placements, listing of blank-cheque companies and reverse M&A of listed shell companies with assets to be listed. In recent years, it has emerged, grown in popularity and gradually attracted attention on the Nasdaq in the US. Many Chinese enterprises also seek listing and financing through SPACs in the US.

Not only has New York Stock Exchange recently started to welcome it, but also Amsterdam, Frankfurt, Hong Kong, Singapore, London and others are starting to study it. Is this popularity of SPAC accidental? The author thinks that it is due to the SPAC’s legal innovations, capital aggregation and industry-driven value.

Listing via a SPAC has the following characteristics: Where a blank-cheque company is listed through IPO, the listed company has only cash and no other substantive assets; industry, professional, capital and management talent gathers to seek industrial operation and capital operation; the way of listing and financing via a SPAC combines the characteristics of direct listing and reverse M&A, and is often accompanied by private placement; the accuracy and success rate of M&A are extremely high.

Its basic operating procedures can be divided into four steps:

(1) Such professional institutions as investment banks and fund companies set up a SPAC company and operate it with a professional management team;

(2) applying for listing and raising cash, a SPAC becomes a blank-cheque listed company;

(3) looking for a suitable target company for M&A; and

(4) the target company exchanges shares to acquire the SPAC company to achieve the goal of financing and listing.

范兴成, Fan Xingcheng, Senior partner, Dentons
Fan Xingcheng
Senior partner

Legal innovation

The legal innovation of the SPAC listing method lies in the creation of a blank-cheque listed company after being approved by the US Securities and Exchange Commission (SEC) through the combination of rule 419 and an exemption condition, which meets the financing and listing needs of target companies that urgently need to achieve mass production.

A SPAC is an indirect listing option for enterprises, but it is fundamentally different from a traditional backdoor listing. This way of listing and financing is a financial innovation based on rule 419 under the US Securities Act of 1933, which was promulgated by the SEC in 1992 to combat securities fraud and abuse of the securities registration system.

According to this rule, when a blank-cheque company (a company with no substantial assets and no substantial purpose or business plan) conducts an IPO, the funds it raises, and the corresponding stocks it sells, must be supervised separately, and a non-blank-cheque company (i.e. the target company, whose market value must be greater than 80% of the funds raised by the IPO) must be found within 18 to 24 months after the IPO is completed to finish the reverse M&A. Otherwise, the blank-cheque company will be liquidated and dissolved.

After finding a suitable company, a legal document about the target company (similar to a prospectus) will be sent to the shareholders of the blank-cheque company after being approved by the SEC. Approval of shareholders who hold at least 80% of the shares of the blank-cheque company must be obtained for the reverse M&A. Otherwise, the M&A will fail.

A SPAC creatively adopts some provisions of rule 419, and makes use of an exemption condition: If the financing amount of the IPO exceeds USD5 million, it will not be restricted by rule 419.

Industry-driven value

The reason why the SPAC listing model has experienced a recent renaissance not only lies in its legal innovation, but also in its industry-driven value that meets the needs of the real economy. The core element of SPAC listing is the deep integration of professional operators, capital and investment banks. Its mechanism is that a group of capital market professionals integrate capital with industry, which is essentially a mechanism of market allocation of resources.

As this mechanism integrates the industry, professionals, experienced management and various elements of social capital, it caters to the pain points of industries that need rapid expansion or emerging industries that need seed-fund investment. When certain conditions are ripe – for example, if the IPO of an enterprise fails, or it is difficult for some mature industries that need expansion and emerging industries that need investment incubation to obtain investment from the capital markets, SPAC provides an alternative.


Legal innovation and capital markets develop in lockstep, not through some mechanical correspondence, but through deep integration and mutual achievement. The prevalence of SPACs depends on many factors, including the development of capital markets, the demand of rational economic development and the trust of investors.

Sprouting in the 1990s, China’s capital market remains an emerging one. Thus, we need to adopt an attitude of respect, and to research new things and pursue “borrowlism” – the idea that China should selectively keep its own culture heritage and carefully “borrow” advanced ideas from other countries. The author believes that the SPAC listing mode is worthy of in-depth study in the domestic capital market from the perspectives of the legal system, industrial development needs and capital mechanism to create some capital financing tools for China’s industrial development, and may be tried when the risk is controllable.

A market economy is ruled by law, and the development and perfection of capital markets need the rule of law even more. The innovation of capital financing tools needs to be carried out under the legal framework and combined with the actual needs of industrial development. Organic allocation of capital and demand for industrial development are the eternal principles of capital market evolution.

Fan Xingcheng is a senior partner at Dentons. He can be contacted on +86 21 5878 5888 or by email at

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