CAYMAN ISLANDS Trends and Developments Contributed by: Christopher Brett Young, Andrew Barker, Hugh Anderson and Sam Francis, Walkers
volume of Special Purpose Acquisition Compa - nies (SPACs) launched since 2020. Although the “SPAC mania” has settled since the boom times of 2021, it has been pleasing to see that Cay - man Islands entities remain the preferred choice for domiciling SPACs. The proportion of SPACs listed in the Cayman Islands has increased from approximately 33% in 2020 to approximately 95% of the SPACs launched in 2024. A material influence on the dominance of the Cayman Islands as the jurisdiction of choice for new SPACs has been the increase in SPAC liti - gation in the Delaware courts. Cayman Islands SPACs and their directors have not been exposed to this litigation to the same extent. Although the non-SPAC IPO market has been subdued in recent years, there is increasing rec - ognition of the advantages that incorporation in the Cayman Islands has to offer in terms of miti - gating litigation risk. The majority of the SPAC-related activity has continued to focus on de-SPAC transactions or liquidations. These have been most apparent in the extension of the terms of existing SPACs to allow more time to consummate a business combination (failing which these entities would otherwise need to liquidate pursuant to the terms of their constitutional documents). This procedure requires an amendment to the SPAC’s constitutional documents to extend the term and to address other requisite updates to ancillary provisions, all by way of shareholder approval. Unlike previous years, where such extensions may have been achieved in the form of one-off transactions with business combinations ulti - mately successfully consummated thereafter, during 2024 rolling extensions or extensions based on certain conditions were more com - mon. Any extension will invariably require addi -
tional funding of the SPAC’s trust account by the sponsor and/or its affiliates in order to incen - tivise public shareholders to remain invested, which has often been a difficult ask in the cur - rent SPAC market. During 2024, there was a continued trend of new management teams being appointed to existing SPACs. This approach through the acquisition of a sponsor interest in an existing SPAC (and the subsequent appointment of a new management team) offered an effective means for a new spon - sor to enter the SPAC market and a clean exit for the incumbent sponsor without a need to liqui - date the SPAC. This process is most commonly achieved by transferring the outgoing sponsor’s shares and private placement warrants issued by the SPAC to the new sponsor, effecting a change in the directors and officers of the SPAC, and co-ordinating an injection of working capi - tal into the SPAC. These steps commonly occur simultaneously with an extension of term. Notwithstanding a reduced application of SPACs in global deal-making, it has been clear that these vehicles will continue to occupy a unique place in the transactional environment in the Cayman Islands. Series financing transactions The anticipated increase in series financing transactions throughout 2024 was less promi - nent than may have been expected. However, venture capital deals generally showed resil - ience, with aggregate deal values increasing for the first time since 2021. There was also an uptick in the use of Cayman Islands entities in venture capital and series financing transac - tions, which has been pleasing to see after the number of these transactions decreased signifi - cantly during 2023.
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