The new Börsenmantelaktiengesellschaft: SPACs under German law

On 14 December 2023, the Financing for the Future Act (Zukunftsfinanzierungsgesetz, ZuFinG) went into force. The law contains numerous new features and changes to German stock corporation law, such as the (re-)introduction of dual-class shares and crypto share (for details, see our article of 8 December 2023). Importantly, the ZuFinG also introduces the so-called Börsenmantelaktiengesellschaft, which will enable the model of Special Purpose Acquisition Companies (SPACs) under German law.

A. Overview

SPACs have been a well-known and (subject to global and macroeconomic factors) popular instrument for decades, particularly in the US. Low interest rate phases, in particular, have led to strong demand for SPACs in recent years. The number of SPACs has risen worldwide since 2020, with an increasing focus on the renewable energy and electromobility sectors.

SPACs are companies that serve exclusively as investment vehicles. They have no operating business of their own but are only established to obtain a stock market listing and to raise capital there. A target company identified before or after the IPO of the SPAC is then acquired using the funds raised (the De-SPAC Transaction).

The main advantage of SPACs is that their IPO is less costly and time-consuming than a regular IPO. The SPAC model offers investors additional security because they are generally repaid their investment - in some cases with interest - if the SPAC fails to acquire a target company. SPACs also offer the opportunity to invest in a company (with an operating business) at a time that would otherwise be often reserved for private equity investors. For the shareholders of the target company, the De-SPAC Transaction offers an additional exit opportunity.

B. Challenges of the current Legal Framework in Germany

Until now, the legal framework in Germany has prevented an efficient utilization of the SPAC model, particularly due to the strict regulations of the German Stock Corporation Act (Aktiengesetz, AktG).

German law stipulates strict requirements for stock corporations with regard to raising and maintaining capital. According to section 36 AktG, the share capital must be paid in and remain at the free disposal of the Management Board. This means that the standard provision for SPACs, whereby the capital raised on the stock exchange is invested in an escrow account at a risk-free market interest rate until the De-SPAC Transaction is completed, cannot be realized under the current legal framework. Another main pillar of the SPAC model, the repayment of the investments in the event that there is no De-SPAC Transaction, is also contrary to the current law. This is because section 57 AktG prohibits both the repayment of share capital to shareholders and the payment of interest.

C. Implementation of a German SPAC or BMAG

The new German SPAC (Börsenmantelaktiengesellschaft, BMAG) is implemented in sections 44-47b of the reformed German Stock Exchange Act (Börsengesetz, BörsG).

1.    Special Features of the BMAG

In section 44 (1) BörsG, the BMAG is defined as a "company with the purpose of obtaining a stock market listing." The addition of the legal form of the “Börsenmantelaktiengesellschaft” may be abbreviated in a generally understandable manner (e.g., BMAG, BöMAG).

The corporate purpose of BMAG then consists of the management of its own assets and the preparation and realization of the acquisition of an unlisted target company with an operating business (Zieltransaktion, Target Transaction). Any acquisition process including conversion processes can be selected, whereby at least three quarters of the shares (share deal) or the entire assets (asset deal) must be acquired.

The deposits (and any share premium) must be held by a trustee (notary public or bank). However, the Management Board must not have access to such funds.

2.    Target Transaction

Prior to the implementation of the Target Transaction, the Management Board must prepare a report describing the transaction and explaining and justifying the appropriateness of the consideration in relation to the value of the target company in legal and economic terms.

The execution of the Target Transaction is finally decided with a quorum of three quarters of the share capital represented when the shareholders’ resolution is passed.

The BMAG's Articles of Association must contain a mandatory provision on the period for executing the Target Transaction, which may be between 24 and 36 months. The period begins on the day the shares are admitted to trading on the regulated market and can be extended by 12 months, in each case by a resolution amending the Articles of Association, as long as the period does not exceed 48 months in total.

3.    Right of Objection and Right to Tender

Shareholders who have objected to the execution of the Target Transaction can demand repayment of their contributions (plus premium, if applicable) from BMAG within two months of the resolution being passed.

In contrast to common SPAC models, shareholders' tender rights are restricted to the extent that only shareholders who have actively objected to the execution of the Target Transaction (i.e. have declared their objection in writing) are entitled to tender their shares. In other jurisdictions, such objection is not a prerequisite for exercising a put option. With this and in combination with the quorum of three quarters of the share capital represented at the time the resolution is passed, the German legislator wants to ensure that a maximum of one quarter of the originally paid-in share capital can flow out due to repayments.

4.    Termination of the BMAG

If a Target Transaction has been executed, the BMAG will continue as an ordinary stock corporation exclusively in accordance with the provisions of the German Stock Corporation Act.

If the Target Transaction is not executed, the BMAG will be dissolved, and the deposits have to be repaid to the shareholders. In this respect, the lock-up period for the distribution of assets has been reduced from one year to two months.

Alternatively, in the event that the Target Transaction is not executed, a shareholders’ resolution may be passed with a quorum of three quarters to continue the BMAG as a regular stock corporation. In this case, an application for delisting must be submitted and a purchase offer must be made to the shareholders who have objected to the continuation as regular stock corporation. This offer must not be below the issue price of the shares (plus premium, if applicable).

D. Summary and Outlook

The German legislator has essentially succeeded in introducing the SPAC model to German company law. The implementation takes appropriate account of investor and creditor protection, considering the special provisions of this legal form. The intersection with the law of the ordinary stock corporation appears appropriate.

It is to be welcomed that the German legislator mainly removed the obstacles that previously prevented realizing the SPAC model in a German legal form and, while closely following the SPAC models known so far in terms of design, has chosen its own path with a few special provisions.

The addition of the German legal form Börsenmantelaktiengesellschaft is, however, arguably unsuccessful in light of the international recognition and familiarity of the term SPAC. It remains to be seen whether the legal form will be accepted by the market or whether proven SPAC models from other jurisdictions will continue to be used.