Capital Markets Authority is considering allowing companies to list publicly through special purpose acquisition companies commonly known as SPACs.

The regulator says it has already received requests by interested groups in Kenya to form SPACs that will take companies public.

CMA claims growing interest in SPACs that can’t be ignored saying “CMA Kenya has received inquiries for support by potential issuers,” but did not mention the parties that have applied to form the acquisition vehicles.

Acquisition vehicles

The regulator said they are doing more research and engaging stakeholders in the market before making a final decision.

“Findings from the International Organization of Securities Commissions SPAC network, more research and stakeholder engagements will help determine inclusion in the Public Offers Listings and Disclosures (POLD) Regulations (under development),” CMA said in its third quarter Capital Markets Soundness Report.

A SPAC is basically a shell company without any operations at all. It is formed with the intention of merging or acquiring another company then taking that company public go public.

What happens is that a team of experienced managers who own 20 per cent shareholding to go public and raises the remaining 80 per cent of the target funds from the public with an intention of acquiring a company from a specific industry in a defined geographical area.

After fundraising the company takes between 12 and 18 months to find the target company, acquire it and take it, and make it a public company after which the SPAC is shut down having accomplished its purpose.

The advantage to the acquired company is that it pays low fees to go public and spends less time in the journey to public listing.

However, the target company’s management team will need to focus on being ready to operate as a public company within three to five months of signing a letter of intent.