On May 20, 2021, Accor announced its intention to sponsor a corporate SPAC dedicated to verticals adjacent to its core hotel business. Accor Acquisition Company (AAC) announced on May 28 that it had successfully raised EUR 300 million (if the over-allotment option is exercised in full) in a private placement of units, admitted to trading on the professional segment of Euronext Paris as of June 1, 2021.
M&A REVIEW EUROPE: The SPAC phenomenon, which has taken off in the United States, is now developing in Europe. What is your perception of this phenomenon? How is AAC different from other SPACs created in Europe?
Jeanne Theuret: Generally speaking, SPACs are interesting cases, raising many legal questions in relation to their structuring, and very fast, especially if we compare them to traditional IPOs, which take at least six months.
Cleary Gottlieb recently advised the Accor Group on the creation of AAC, the first corporate SPAC in Europe. The “corporate” specification is important because it is very differentiating in the SPAC world.
This acquisition vehicle has a limited duration as it has a target acquisition period of 24 months following the IPO. Once the vehicle has been set up, various capital increases are carried out for the benefit of the founder (or sponsor) and in certain cases the managing director, just before the IPO. At the time of the IPO, a capital increase is carried out for the benefit of certain categories of qualified investors (professional compartment of Euronext Paris) meeting a certain number of strict criteria (investing, for example, in the sectors targeted by AAC) as well as a capital increase for the benefit of Accor, for the purposes of “capital at risk”.
AAC targets companies active in sectors adjacent to Accor’s core hotel business namely flexible working, wellness, food and beverage, travel technology, entertainment and events sectors. It allows Accor to have a stake in a vehicle that will make acquisitions in areas that do not represent Accor’s core business in order to expand the group’s ecosystem. It allows AAC, on the other hand, to benefit from Accor’s scale, sourcing and execution capacities, unlike other SPACs, which may raise a few more questions in the market, particularly with regard to the proliferation of this type of project. This also makes it attractive to potential targets as to the viability of the SPAC and its proper functioning, as AAC relies in particular on Accor’s global presence, network and expertise. Accor’s presence confirms that there is a concrete, solid project and a real strategic vision behind this SPAC.
Corporate SPACs exist in the United States but do not represent the majority of SPACs. This case was particularly interesting and involved numerous legal issues related to its structuring, particularly Accor’s rights and the terms and conditions of different securities. We worked extensively with PwC, AAC’s auditor, on the structuring as well as the characteristics of the securities and their accounting treatment.
M&A REVIEW EUROPE: Accor could simply acquire complementary businesses. What is the point of going through this type of vehicle, which raises a lot of questions, with a system of French law that also leaves many questions open?
Jeanne Theuret: AAC enables acquisitions to be made in sectors adjacent to Accor’s core business, which remains focused on hotels, in line with investors’ expectations. Thus, Accor has the opportunity to expand its ecosystem via AAC, while only having a minority stake in the structure. It is a stake in a vehicle oriented towards this type of specific acquisition, allowing Accor to further improve its offering to the group’s owners and guests.
M&A REVIEW EUROPE: Is there a Covid effect in this strategy?
Jeanne Theuret: I believe that this strategy is unconnected to the Covid context. It is an innovative vision of the Accor group, which also strengthens the attractiveness of the Paris marketplace. It is a good tool for exploring new areas with a real strategic project. It reflects a desire to innovate for the benefit of the overall business and sector.
M&A REVIEW EUROPE: SPACs allow the sponsor to subscribe to the “promote” (“founder’s shares”). This is an important financial advantage. Could you explain the concept of the “promote”?
Jeanne Theuret: The “promote” is the subscription by the sponsor of securities at the nominal value of the share (lower than that of the IPO). At the time of the subscription of the promote, there is no certainty as to the transaction, which explains the value differential. It is generally structured in ordinary shares that are converted into the sponsor’s preferred stock at the time of the IPO. This advantage is linked to the risk taken by the sponsor, which creates this structure and which, contrary to the market, does not benefit from a right of repurchase at the time of the Initial Business Combination. Also, if there is no de-SPACing at the end of the 24 months, all the shareholders get back the subscription price of the preference share B subscribed on the day of the IPO, which is not the case for the sponsor, who will not recover his entire investment.
M&A REVIEW EUROPE: Do SPACs represent a new extension of the approach that has led to the growing success of private equity?
Jeanne Theuret: Yes, in that it allows for a wider range of investors. But it is important to remember that, even as an SPAC with little history, the fact of being a listed company represents not only a greater visibility, but also significant constraints compared to a traditional fundraising.
M&A REVIEW EUROPE: Today, SPACs are the subject of much criticism. There is a lot of talk right now about transparency issues related to SPACs. Have you taken this into account?
Jeanne Theuret: The bad press and the fuss around this instrument can scare investors away. This was not our case, probably because there was a concrete operational and strategic project. AAC is not an SPAC like any other because it is based on a vision and a leading French player.
The judgement at the time of de-SPACing is mainly based on the strategic project, the identification of the target and the possibility of implementing synergies.
M&A REVIEW EUROPE: Is there a risk of pressure on the SPAC’s management from potential targets as we get closer to the end of the de-spacing period?
Jeanne Theuret: Due to the nature of a corporate SPAC, the timeframe can be extended to 30 months, when a binding agreement is signed during the first 24 months after the IPO. From experience, two years are sufficient to make an acquisition. The work of identifying targets is already underway. It is the role of the management to establish a precise list of potential targets and to initiate discussions. Afterwards, the company can make other acquisitions, some of which may have already been identified during this first phase.
Jeanne Theuret’s practice focuses on equity capital markets and public M&A transactions, as well as corporate governance for listed companies. She assists a broad spectrum of market participants – corporates, financial institution issuers and investment banks – in every phase of the transaction.