Nordic Special Purpose Acquisition Companies and Their Long-term Viability in Nordic Capital Markets

Abstract

A Special Purpose Acquisition Company (SPAC) is an investment vehicle with the sole intention of raising capital through an initial public offering (IPO) to acquire an operating company. The phenomenon has a long history in U.S capital markets and in fact a majority of all U.S IPOs during 2021 were SPACs. Despite the wide adoption, the corporate structure is highly criticized and argued to mislead investors through complex security designs. Nevertheless, NASDAQ Nordic introduced the possibility to list SPACs on February 01, 2021, a development which in the light of weak performance seems counterintuitive. The purpose of the research is to identify if Nordic SPACs are different and if this is likely to increase the long-term viability of the investment vehicle. First, desk research is conducted to collect data on the initial development of the Nordic SPAC market. Second, semi-structured interviews are conducted to explore the current perceptions and future viability of the investment vehicle. In addition, a conceptual framework on SPACs is developed. The study finds that Nordic SPACs are generally smaller in size, sponsors contribute more capital, and warrants are used less extensively and are typically tied to long-term stock performance. Ultimately, SPACs are not expected to be sustained in the current form as targets are expected to collect the entire surplus. This is contingent on two mechanisms, one being that sponsors are only involved in the acquisition and the second being that targets see few benefits from being acquired by a SPAC. If sponsors provide expertise in manging the company post an acquisition, similar to private equity, the model is expected to be more sustainable. Followingly, long-term ownership is more likely to be seen in the Nordic context as compensation is tied to long-term performance, however, no evidence of actual long-term ownership can be identified so far.