What to know about special purpose acquisition companies and their role in pension investments: A Q&A with Toronto lawyer Stephen Pincus, a partner with Goodmans LLP, who has been involved with SPACS since their inception.
By Ed McCarthy
While the U.S. market for SPACs (special purpose acquisition companies) experienced rapid growth in 2020, activity in the Canadian market has been more subdued. Despite the disparities in activity levels with the U.S. market, some industry participants believe the Canadian market is well positioned for growth. Stephen Pincus, a lawyer and partner with Goodmans LLP in Toronto, has been involved with Canadian SPACs since the structure’s local inception. CAiP recently asked him for his thoughts on the market’s condition, outlook and SPAC’s possible role in pension plan investments.
CAiP: Tell us about your involvement in the Canadian SPAC market.
Stephen Pincus: Canada introduced SPACs in 2009 and we were asked by the Toronto Stock Exchange (TSX) to prepare their first SPAC guide. Of course, 2009 was a very low point in the capital market cycle and the first Canadian SPACs were only formed in 2015 so their history is quite recent compared to the United States. We’ve been involved in the majority of Canadian SPAC transactions.
CAiP: How would you describe the Canadian SPAC market’s current status?
Pincus: There’s definitely been an increase in interest in Canada, from both Canadian and U.S. sponsors and investors. But it’s a much younger and smaller market than the U.S., so the level of activity is nowhere near what we’ve seen there over the past year.
CAiP: Why would US sponsors decide to form their SPACs in Canada?
Stephen Pincus
Pincus: There are a number of reasons that U.S. companies decide to go public in Canada, whether as a SPAC or otherwise. One obvious reason is that a company may get more attention as a larger fish in a smaller pond in Canada than it would as a small fish in a big pond in New York.
But there are more complex and subtle nuances. For example, our system for going public is generally much faster than in the U.S. We did a study a number of years ago that showed that it takes about three times as long to go public in the U.S. as it does in Canada.
This also applies to SPAC qualifying transactions and in Canada, a shareholder meeting is not generally required to approve such a transaction.
We also have a very robust form of raising equity for public companies called the bought deal, which is in the U. S. generally not accessible to mid-market and smaller companies. The bought deal is responsible for about 90% of the equity that’s raised on the Toronto Stock Exchange.
CAiP: Are Canadian pension plans participating in the SPAC market?
Pincus: I think long-term pension fund investors would generally be more interested in SPAC qualifying transactions than in the SPAC IPOs. Following the announcement of a qualifying transaction by a SPAC, a pension fund may wish to participate in that transaction, especially through the private capital raise that often occurs concurrently with the completion of that transaction.
Ed McCarthy is a longtime financial writer and author of three books, including “Foundations of Computational Finance with MATLAB.”
To learn more about SPACs in the Canadian pension industry, register now for the upcoming March 25 CAiP Virtual Forum on Private Capital (Debt and Equity) that will feature additional presentations on SPACs.
