Canada: SPACs, The "New" Private Equity Vehicle In Canada – An Asset Class Of $800M And Growing

Last Updated: July 1 2015
Article by Paul D. Davis, Hellen L. Siwanowicz and Marina Tran

On June 24, 2015, Acasta Enterprises Inc. announced that it had filed a prospectus for an initial public offering (IPO) of $275 million. If completed, this would be the largest, and the fourth, special purpose acquisition corporation (SPAC) to go public on the Canadian capital markets – all of this occurring over the past three months. The first three SPACs, Dundee Acquisition Ltd., INFOR Acquisition Corp. and Alignvest Acquisition Corporation, raised $100 million, $200 million and $225 million, respectively. It is now clear that a new asset class is being quickly developed in Canada.

Given the SPAC trajectory, we believe it would be useful to reflect on the historical roots of SPACs in Canada and to summarize the current state of the market. To assist market participants, please see a summary outline of the rulesgoverning SPACs and a comparison thereto of the structures implemented by the four SPACs that have been announced in Canada.


The first four IPOs for SPACs in Canada no doubt caught some market participants off guard, primarily because the Toronto Stock Exchange (TSX) established the rules allowing for SPACs in December 2008. In fact, SPACs have existed in the United States market since the early 1990s. Since 2003, the use of SPACs as a viable alternative for investors looking to participate in corporate acquisition opportunities traditionally pursued by private equity firms has risen sharply within the American market. Between 2003 and 2008, more than US$21 billion in gross proceeds were raised through SPAC offerings in the United States.1 It was this growing market interest in the United States that led the TSX to adopt SPAC rules in 2008 notwithstanding its initial reluctance to permit SPACs to go public in Canada, largely because SPACs lack an operational history and cannot meet certain financial standards. Since the financial crisis commenced in 2008, US$9.4 billion in gross proceeds have been raised through SPAC offerings in the United States.2

What are SPACs

A SPAC is a publicly-traded holding company with no operating business at the time of its IPO. Instead, SPACs are marketed on the strength of an experienced management team, sophisticated investors and a sponsor (Founders). The Founders may be, but are not always, focused on a particular industry, sector or geographical area. SPACs require a minimum IPO of $30 million and there must be at least one million freely tradable securities held by public holders and at least 300 public holders of securities, holding at least one board lot each. Generally, the proceeds of the IPO (or a significant portion thereof) are held in trust (or escrowed) while management seeks an appropriate target business to effect an undetermined future acquisition (a qualifying acquisition), which needs to be completed within 36 months from the date of the IPO. If a qualifying acquisition is not completed prior to the deadline, the escrowed IPO proceeds are returned to shareholders (other than the Founders).

Formation and General Structure

A small group of Founders will establish a SPAC. The Founders purchase common shares of the SPAC at a nominal price, and thereby obtain a significant carried interest. In the Canadian model,3 this carried interest is 20% of the issued and outstanding shares, 25% of which is subject to forfeiture if the trading price of the shares does not increase by more than 30% of the IPO price within five years of the IPO. Founders and/or sponsors will generally need to also acquire shares at the IPO price to finance the SPAC's pre-qualifying acquisition expenses.

The SPAC program is primarily governed by the rules of the TSX, and involves a two-stage process:

  • the filing and clearing of a SPAC listing application and prospectus (to be prepared in accordance with applicable securities laws), the completion of the IPO and the listing of the SPAC's common shares on the TSX (including obtaining any required regulatory relief); and
  • the identification and completion (following shareholder approval by majority vote) of a qualifying acquisition.

The SPAC program is similar to the capital pool companies program of the TSX Venture Exchange that has been available in Canada since 1987. Both programs enable companies with no assets and no commercial operations to enter the Canadian public capital market and later acquire an operating business using the proceeds raised in the IPO. However, the SPAC program operates on a larger scale, contains more stringent investor protections and is generally more attractive to a wider range of investors. However, at least initially, it would appear that investors in SPACs are institutions and high net worth investors, with the retail market primarily on the sidelines.

The SPAC program is not available to issuers that have entered into a written or oral binding acquisition agreement with respect to a potential qualifying acquisition prior to the completion of the IPO. However, a SPAC is permitted to engage in the process of reviewing potential qualifying acquisitions and may enter into non-binding agreements, including confidentiality agreements and non-binding letters of intent.


While it is surprising that it has taken six years for the SPAC program to take hold in Canada, the advantages are clear to investors and acquisition candidates:

  • A SPAC will have capital readily available to utilize when it identifies a qualifying acquisition, which will allow the SPAC to react quickly to any potential merger transactions and will thus provide an advantage over other competing bidders which may not already have such financing in place.
  • A SPAC may also use its securities as currency in an acquisition, thereby allowing it to secure a much larger target while providing potential incentives for owners of prospective targets.
  • Multiple acquisitions completed concurrently by a SPAC could provide access to a TSX listing for companies that do not individually satisfy the minimum listing requirements of the exchange.
  • Consistent with the US model, investors have come to expect that all of the IPO proceeds will be deposited in escrow. As a result, SPACs' pre-qualifying acquisition costs are funded by the Founders/sponsors, providing greater security to investors and further aligning the interests of the Founders/sponsors with investors.
  • The requirement of underwriters to deposit a minimum of 50% of their commissions from the IPO to be held in escrow (in the Canadian model, 58-59% of commissions have been escrowed), helps to motivate underwriters and agents to remain committed to the success of the SPAC following its IPO.
  • The right of shareholders in the Canadian model to get 15% of their common share investment back (but still keep all of their warrants) in connection with the vote to approve a qualifying acquisition (conversion right), and the right to be repaid all of their investment if a qualifying acquisition is not completed on a timely basis (liquidation distribution right), help protect investors; and this contributes positively to the IPO marketing process.
  • Unlike many private equity vehicles, investors are able to dispose of their interest on an exchange at any time they wish.
  • The fees and expenses of SPACs which may be paid prior to completion of the QA have been very limited in the Canadian model – which compares favourably to traditional private equity management fees.
  • SPACs that have a strong management team are well-positioned to take advantage of depressed stock prices of operating companies that are experiencing financial difficulties, especially during turbulent economic times.

The development of the SPAC asset class in Canada is new and it will be interesting to see how it develops. While the future of this asset class looks promising, long-term success will no doubt be linked directly to the achievements of the early market entrants, and more specifically to the quality of the qualifying acquisitions completed by these early market entrants.


1 Raymond D. King, Senior Manager, Global Diversified Investments, Toronto Stock Exchange and TSX Venture Exchange, "Guide to Special Purpose Acquisition Corporations" (accessed 2015, TSX Inc.).

2 "Fundamental Analysis" (5 May 2015). 

3 In referring to the Canadian model, we mean aspects of the structure used in the four Canadian SPAC IPOs which are identical. See chart for more details.

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2015

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Paul D. Davis
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.