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Corporate and commercial law

Commercial, transactional and tax affairs

Canadian Stock Markets Embracing SPACs

21 September 2023

The American stock exchange’s Special Purpose Acquisition Companies (SPAC) programs offer an alternative to the traditional method of going public through an initial public offering (IPO). These programs have become so popular that stock exchanges and experts in Canada and other countries are mobilizing to help our companies secure financing and go public by implementing similar programs.

For most managers, taking their company public is a complex process. Those who succeed accelerate their growth plans and, in many cases, their companies eventually rank among the largest. Among other advantages, the SPAC method is faster and less expensive than a traditional IPO.

In recent years, fewer companies have gone public. Among those that did, the majority chose the traditional IPO route. On the other hand, in 2020, the U.S. saw a dramatic increase in the number of listings that have taken an alternative route to going public, i.e., by completing a business combination with a SPAC (59 SPAC IPOs in 2019 versus 248 in 2020). To date, there have been as many new SPAC listings in the U.S. as there were in all of 2020: 289 SPAC IPOs with 255 pending regulatory review.i This is a dramatic increase.

A SPAC is an entity that goes public through an IPO and whose only operations are related to seeking a Business Combination with a private entity, financing it, then closing. The entity resulting from the Business Combination of a SPAC and a private entity should be a public company that is well-capitalized to execute its business plan.

This method of going public is gaining momentum in several other countries. Most notably, this vehicle is being used to finance and list companies located in countries other than the SPAC’s. Could this be an acceleration of the internationalization of the financing of publicly traded companies?

For example, Lion Electric (Lion) of St. Jerome, Québec, is in the process of completing this type of transaction. To raise capital and begin trading on the NYSE, Lion plans to complete a Business Combination with the American SPAC Northern Genesis Acquisition Corp. The transaction will raise US$319 million from the sponsor and the SPAC’s public investors. In addition, as part of the SPAC’s Business Combination with the private entity (e.g., Lion), there will be private investment of US$200 million. After the Combination and this financing, it is estimated that Lion’s current shareholders will own 68.1% (US$1.359 million) of the company resulting from the Combination, which will be listed on the NYSE. ii The SPAC’s sponsors will then own certain shares of the resulting company, which they will have acquired at a nominal price. This is the incentive (promote) for their contribution.

All Canadian exchanges have or will soon have SPAC programs. Other SPAC programs are in place or will soon be promoted by several foreign exchanges. It is important to note that Canada has three senior stock exchanges: the Toronto Stock Exchange (TSX), the NEO Exchange (NEO) and the Canadian Stock Exchange (CSE), as well as a junior exchange dedicated to public SMEs, the TSX Venture Exchange (TSXV). Both the TSX and TSXV are owned by TMX Group.

Since the beginning of their program, the TMX and NEO Groups have taken approximately 30 SPACs public. To date, some of them have completed Business Combinations, thus financing and listing previously private entities. These numbers do not include the TSXV, which has been operating its SPACjr program (CPC) for decades.

Canadian SPAC programs are stock exchange programs that have been approved by the relevant provincial regulatory authorities. Under the terms of these programs, entities are created that will go public by filing a SPAC prospectus (incl. SPACjr) approved by the regulatory authorities in the province where their shares will be offered. SPACs have no commercial activities other than seeking and completing a Business Combination within a period that must not exceed 36 months. This does not apply to SPACjrs, which do not have a time limit. These programs provide mechanisms to protect the funds raised from the public until the Business Combination takes place, as well as controls over the selection of the SPAC’s directors with regards to their integrity and their collective knowledge of public companies.

Two of Canada’s senior exchanges, the TSX and the NEO, have a SPAC program similar to that of the TSX. The CSE would work with its regulatory authorities to develop a SPAC program that would be similar to that of the TSX. The TSX has modeled its SPAC on that of the NYSE and NASDAQ. In its SPAC Guide, the TSX states:

A SPAC is an investment vehicle allowing the public to invest in companies or industry sectors normally sought by private equity firms. In addition, it can provide an opportunity for individuals unable to buy into hedge or private equity funds the ability to participate in the acquisition of private operating companies traditionally targeted by those funds.

Unlike a traditional IPO, the SPAC program enables seasoned directors and officers to form a corporation that contains no commercial operations or assets other than cash.


SPACs become reporting issuers as a result of their IPO, and thus are fully regulated by the relevant provincial securities commissions as well as TSX. And because the SPAC is a publicly traded entity, it also provides access to liquidity for investors, allowing those shareholders to increase or decrease their investment risk profile accordingly.

Clearly, the success of a SPAC depends on the quality of its sponsors, as well as that of the Business Combination, the company’s managers and their business plan.

For decades, the TSXV has had a SPAC program called Capital Pool Companies (CPCs) (referred to herein as SPACjr). It is similar to the TSX’s SPAC program, with several notable differences. The TSX recently modified its CPC program to make it more popular. It has also confined the program to the TMX Group by limiting the amount it can raise to $10,000,000 prior to its combination with a private entity. Furthermore, the TSX’s SPAC program requires an IPO in which at least C$30,000,000 is raised. In practice, few SPACjrs (more precisely, CPCs) raise more than C$2,000,000 before their combination.

We understand that NEO believes that these limitations give way to a new type of Canadian SPAC program that falls somewhere between the TSX and the NEO SPAC programs. This is the Growth Acquisition Corporation (G-Corp) program, a recently announced pilot project. I invite you to read our article titled « La Bourse NEO propose une nouvelle SPAC » (article is available in French only).

Unlike the TSX and NEO programs, the TSXV program (CPC) does not provide a mechanism whereby a CPC shareholder can request the redemption of his or her shares. Also, under certain conditions, neither CPCs nor SPACs require shareholder consent for the proposed combination.

With respect to financing concurrent with the Business Combination (e.g., PIPE), Canadian SPAC programs do not limit the amount that can be raised through this transaction.

With these new vehicles for our senior exchanges, changes to the junior exchange program (SPACjr), and what the NEO will be proposing, in Canada and elsewhere, we may see an increase in financing and public offerings by combining our companies with Canadian or foreign SPACs and by creating Canadian SPACs for these purposes.