CFIUS Triggers as a Result of SPACs with U.S. Targets

The U.S has been the primary market for special purpose acquisition company (SPAC) listings globally. Currently, there are almost 300 newly listed SPACs (in 2021), over 400 SPACs currently searching for targets to acquire, and approximately 150 SPACs that have announced the intent to acquire a target.   

Despite the volume of current activities, new U.S.-based SPAC listings have started to decline. And, as the U.S.-based SPAC listings decrease, the interests of SPAC sponsors in foreign markets still remain. As examples of foreign market appetite, there are plans to consider reforming certain market frameworks to attract SPAC sponsor listings on exchanges:   

• The Singapore Stock Exchange expects to introduce a SPAC framework in 2021;
• The Tokyo Stock Exchange expects to amend IPO procedures for SPACs with discussions to start 2021; and
• The London Stock Exchange opened a SPAC consultation period in 2021 to propose reform.

As SPAC sponsors listed on foreign markets (and who may have intent of targeting U.S.-based companies) increase, foreign SPAC sponsors should be aware of U.S. laws regulated by Committee on Foreign Investment in the United States (CFIUS) with provisions defined in the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA). While foreign SPACs present potential emerging risk, foreign investors currently participating in SPACs and/or private investments in public entities (PIPEs) with the intent to acquire interests in U.S.-based companies may be at risk for CFIUS jurisdiction.

As an example, a CFIUS jurisdiction trigger may require a voluntary filing to occur as a result of a de-SPAC transaction, or when the foreign SPAC sponsor acquires a U.S. target company. A CFIUS filing may be performed either as a (1) joint voluntary notice or (2) declaration which has a review period that may vary and may last over 100 days with a potential outcome requiring the foreign SPAC sponsor/foreign investor to either to divest from the U.S. target or develop a CFIUS compliance framework.

As the potential foreign SPAC sponsors and existing foreign investors participating in SPACs and/or PIPEs both with the intent of targeting U.S. based companies increase, those foreign investor participants should not only evaluate the contractual obligation of the target acquisition timeframe but also the timing and economics of the CFIUS regulatory requirements for filing, review, and potential outcome.