B3 releases report with guidance regarding the implementation of SPACs in Brazil and abroad

The Brazilian Stock Exchange (“B3”) released a report with its guidance regarding the implementation of Special Purpose Acquisition Companies (“SPACs“) in Brazil and related issues of relevance abroad. The purpose of the report is to provide information about the main regulatory aspects of SPACs and to offer insights and suggestions on the adoption of this structure in Brazil.

The studies were conducted especially in the context of the incorporation of the first SPAC in Brazil by Alvarez & Marsal, with the legal assistance of Demarest Advogados throughout the process and implementation.

The report is an important step in the current market landscape, as clarifying the characteristics of the product contributes to its adaptation and the development of the Brazilian capital market with a new investment option becoming available.

From the investor’s point of view, SPACs are an alternative for diversification and an opportunity to seek desirable yields while benefiting from fixed income, with minimized risk exposure due to the statutory guarantee of return on the investment.

The report prepared by B3 lists the characteristics of the SPACs that bring security to the investors and parameterize the actions of sponsors:

  • appropriate disclosure to the market at the time of the launch of the IPO;
  • the specific destination of the funds raised by the SPAC, since at least 90% of the funds raised in the IPO must remain in an escrow account to enable the business combination and/or to refund investors who decide to redeem their equity interest, or in the case of liquidation of an SPAC if the business combination is not carried out within the established period;
  • resolution on the business combination at the shareholders meeting, regardless of the structure chosen, with guarantee of disclosure to investors of the information required to evaluate the transaction; and
  • minimum statutory provisions that ensure protections to the investor, including those indicated above.

It is also worth keeping in mind the learning opportunity presented in light of the challenges faced by the product in the United States and the guidance issued recently by the SEC with additional disclosure and liability rules, which all help to direct the requirements that must be complied with in the adoption of SPACs in Brazil.

The Brazilian legal system – whether through the Brazilian Corporation Law or the rules applicable to corporate reorganizations involving publicly held companies, addresses the main concerns recently raised by the SEC, which indicates the alignment by our capital market with the best governance practices to promote a secure trading environment.

The full B3 report, entitled “SPACs: International Practices and Governance Aspects”, can be accessed here (available only in Portuguese).

Demarest’s Corporate team remains at your disposal for further clarification or information on this and other related topics.