The first half of 2021 has been marked by sustained IPO activity in Paris, in particular with the listings of Believe, the first unicorn to be listed in Paris, and Aramis Group, but also by the development of SPACs on the Paris market.
While only two SPACs1 went public in Paris between 2016 to 2020, three new SPACs have been listed on the Paris stock exchange in only the last few weeks2.
With DEE Tech, the latest SPAC to date, Euronext Paris welcomes its very first SPAC dedicated to the technology sector. Launched in June 2021 by entrepreneurs Marc Menasé, Michaël Benabou and Charles-Hubert de Chaudenay, supported by MACSF Epargne Retraite and IDI, DEE Tech successfully raised €165 million as part of its listing on the professional segment of the regulated market of Euronext Paris.
Though adopting most of the common key features observed on SPACs in Europe and the United States, this fifth French SPAC is also an illustration of several recent developments on the SPAC market, searching for a better balance between the interests of investors and those of SPAC sponsors.
1. A business sector with strong development potential
Special Purpose Acquisition Companies (“SPACs”) are newly formed companies with no operational activity that go public in order to raise funds to finance one or more acquisition transactions not yet identified at the time of the IPO. Most often, and as is almost always the case for European SPACs, these acquisition vehicles are focusing on one or more specific business sectors which have in common strong growth potential.
DEE Tech is no exception to this rule. Offering an opportunity to invest in the attractive Tech sector, a fast growing market that benefits from digitalization, especially since the COVID health crisis, DEE Tech aims to invest in a technological company focusing on digital solutions and e-commerce, with the objective of creating a European Tech giant.
2. A project led by founders with complementary expertise and know-how
Like most SPACs generally relying on a team of founders or sponsors, combining profiles of former bankers and successful entrepreneurs with recognized sector expertise, DEE Tech is the association of five entrepreneurs and investors with complementary profiles, namely Marc Menasé (French serial entrepreneur and founder of Founders Future, a dedicated tech and impact investment firm), Michaël Benabou and Charles Hubert de Chaudenay (respectively, co-founder and former CEO of Veepee), MACSF Epargne Retraite (leading insurer for healthcare professionals) and the listed investment company, IDI.
The combination of this highly complementary team has succeeded in convincing high quality institutional investors and family offices of DEE Tech’s project aimed at supporting digital and/or e-commerce enablers in a new stage for their company, by allowing, through a SPAC, a listing that will pave the way for the development of a major player in European Tech.
3. An innovative capital structure to better align the interests of investors and founders
A SPAC’s share capital is traditionally split between market investors (80%) and the founders (20%), with the latter having generally invested around 2.5% to 3% of the equity in the structure. This method of remuneration of the founders, made possible by the subscription of preferred shares at their nominal value, that will convert into ordinary shares at the time of the completion of the initial business combination (the “IBC”), is commonly referred to as the “promote” in the SPAC world, and is designed to reward the risk-taking of founders who, unlike market investors, do not have the option of having their shares redeemed at the time of the IBC and are also subject to an additional post-IBC lock-up, limiting the possibility of selling their shares.
This “promote” structure has recently evolved with the appearance of the “staggered promote” mechanism, whereby the “promote” is no longer automatically paid in full upfront to the founders upon completion of the IBC, but progressively linked to any appreciation of the company’s share price and its performance following the completion of the IBC. DEE Tech is the first example in France of this mechanism, which was previously implemented by the German SPAC Lakestar listed in February 2021 or by the Dutch SPAC Hedosophia European Growth in May 2021.
DEE Tech is also a good illustration of a recent trend, consisting in the founders subscribing, on top of their investment as founders, market units as part of the IPO, ranking pari passu with market investors, requiring a SPAC’s sponsors to put more “skin in the game” for a better alignment of the interests of market investors with those of the founders.
4. A compelling governance, in line with institutional investors’ expectations and market recommendations
DEE Tech has elected to comply with the recommendations of the French AFEP-MEDEF corporate governance code, with a strictly balanced Board of Directors (composed of 50% independent members and 50% women) and various Board committees (audit, compensation and appointments), each consisting of a two-thirds majority of independent directors. In addition, the approval of the IBC will require a majority of the members of the Board of Directors, including a two-thirds majority of its independent members.
DEE Tech has also adopted a clear and transparent policy for managing conflict of interests, in line with the guidelines of the French Autorité des marchés financiers (financial markets authority), which is particularly attentive to ensuring that investors are provided with complete information in relation to governance and the management of potential conflicts of interests, as stated in its press release of April 15, 2021, underlining that the French legal framework allows SPACs listing in Paris while ensuring investor protection. The Securities & Exchange Commission, the US regulator, has also recently emphasized the need for enhanced rules with respect to conflict of interests, although other European markets are still lagging behind on this topic.
5. A listing on Euronext Paris, illustrating the attractiveness of the French financial markets for SPACs and more broadly for the Tech companies
After Believe’s IPO, the first French unicorn listing in Paris, DEE Tech’s successful IPO, the first French SPAC dedicated to the tech sector, illustrates the attractiveness of the Paris stock exchange for the fast-growing Tech sector.
While many digital companies have been financed by venture and private equity funds, DEE Tech is betting that the Paris stock exchange is an alternative way for the French Tech and its start-ups to finance their growth. This is also echoing the Paris Europlace’s report published few days ago which, through several proposals, calls upon many French unicorns to list in Paris.
With respect to SPACs, the Paris stock exchange has reached a major milestone: with now five listed SPACs, France is definitely positioning itself as an attractive host country for the many SPAC projects currently under consideration throughout Europe.
1 Mediawan in April 2016 and 2MX in December 2020
2 Accor Acquisition Company, first European Corporate SPAC , in May 2021, Transition in June 2021 and DEE Tech also in June 2021
