Since the Financial Regulatory Authority (FRA) greenlit SPACs in July, there has been a flurry of interest from the market. On 1 August, Catalyst Partners, a private equity firm focused on the MENA region, became the first to submit a request to the FRA to establish a SPAC under the name Catalyst Partners Middle East.
Our advisory experts sat down with Mr. Maged Shawky, Chairman and Managing Partner of Catalyst Partners, to unpack what the new regulations mean for the market, what sectors set to benefit, and the role of financial service firms in navigating this new reality.
The new amendments were rolled out a time where IPO activity has relatively stalled in Egypt, both in terms of volume and value. As such, the new measures aim to facilitate the easy and rapid entry and exit of investments, which would in turn enhance investor sentiment, driving their appetite to inject capital into the market.
SPACs are also especially suited to bringing privately-owned, fast-growing startups into the public market, aligning with the FRA’s wider objective of stimulating startup and fintech activity, as well as bolstering financial inclusion.
With innovation and AI capturing global attention, disruptive, tech-focused companies are well positioned to benefit from the new measures to raise capital quickly and more efficiently than through a lengthy IPO process. This is especially true for those in sectors high on the government’s agenda that remain strategically critical for economic development.
“Beyond specific sectors, the new regulations allow companies to bring together several synergistic, smaller players under a single roof without the operational complexities of having to merge them all. For example, you can form a full scope-fintech player by merging a lending platform and then retaining a payments solution provider and an e-wallet player as subsidiaries – driving value for stakeholders across the value chain. Not only does this create a compelling equity story but it gives investors the assurance needed that the transaction is likely to go through smoothly and successfully without the lengthy, red-tape-laden process of multiple mergers,” said Mr. Shawky.
SPACs offer investors and targets not only a new set of financing opportunities that compete with later-stage venture capital or private equity funding and the traditional IPO process, but also the prospects of less dilution, shielding targets from market uncertainty with regards to valuation.
Egypt’s regulations seek to address the shortcomings of those in global markets, which have seen investors lose confidence in SPACS due to lack of clear direction, overly optimistic valuations, and lenient due diligence and reporting regulations. The regulations shield the SPAC from retail volatility by trading at par value until it can issue one year of audited financial statements or an independent financial advisor determines its fair value, which must be approved by the FRA.
“Retail investors can be short sighted and over-reactive whether they are being bullish or bearish. The FRA’s regulations protect SPACs for as long as possible from this volatility until investors are confident in the story and a fair value is determined,” said Mr. Shawky.
“Navigating the relative newness of SPAC regulations requires more than just the traditional advisory services we’d offer to a company going public for the first time. Our approach is holistic, combining several experts from across our lines of business to provide strategic insights and rigorous due diligence. This ensures each transaction not only complies with regulatory standards but delivers maximum value for all stakeholders,” said Mr. Saleh.
Financial advisors and audit firms play a crucial role, ensuring transparency, compliance, and strategic guidance throughout the SPAC lifecycle. Not only is an IFA report a regulatory requirement for SPACs, but financial advisors such as SBA – Grant Thornton can assist SPAC sponsors in identifying and evaluating potential acquisition targets, conducting thorough due diligence, and structuring deals to maximize value for shareholders. They also provide market insights and strategic advice to help navigate regulatory requirements and market conditions.
Audit firms, on the other hand, are responsible for verifying the financial statements and disclosures of both the SPAC and the target company, ensuring accuracy and compliance with regulatory standards. Their involvement is essential in building investor confidence and ensuring the integrity of the financial information presented during the merger process. Together, they help mitigate risks, enhance credibility, and facilitate successful SPAC transactions.
“There are two key things financial advisory firms can do to help truly drive value for their clients in this new reality. The first is to be dynamic and flexible; with everything new, it’s inevitable that things come up during the cycle that will require some creativity to maneuver. The second is to treat them as partners beyond just offering a service, but to provide unique insights on the regulatory environment, the sector and the market,” said Mr. Shawky.
Our goal is to guide clients through this new landscape, providing the expertise and insights needed to succeed. Our services include:
We have also developed a multidisciplinary approach to help startups, including advisory and training services for local entrepreneurs, ensuring they have the tools they need to mitigate risks, grow sustainably and contribute to wider economic development. We offer:
For more information on how we can assist you, please contact our team.
