Navigating De-SPAC Mergers with Foreign Private Issuers: Structural Considerations, Nasdaq Rules, and SEC Compliance

The resurgance and refinement of SPAC transactions over the past few years has transformed how companies—particularly cross-border businesses—approach public listings in the U.S. Foreign Private Issuers (FPIs) represent a uniquely strategic category in the SPAC landscape. De-SPAC transactions—wherein a Special Purpose Acquisition Company (SPAC) merges with an operating company—still offer valuable opportunities, particularly for global firms. For FPIs, navigating a de-SPAC merger involves careful analysis of SEC rules, accounting standards, stock exchange governance obligations, and overall transaction structure. A key part of this analysis includes understanding SPAC-on-top vs. SPAC-on-bottom structures, the impact of FPI status, and the applicable stock exchange (e.g., Nasdaq) regulatory framework.

What Is an FPI and Why Does It Matter?

A Foreign Private Issuer is any non-U.S. company that meets both of the following conditions: (1) more than 50% of its outstanding voting securities are held by non-U.S. residents, and (2) it does not (a) have a majority of its executive officers or directors who are U.S. citizens or residents, (b) have more than 50% of its assets located in the U.S., and (c) administer its business principally in the U.S. FPIs benefit from less burdensome periodic reporting and exemptions from many U.S. corporate governance mandates, such as proxy rules, executive compensation disclosures, and shareholder approval requirements.

When a SPAC transaction involves an FPI—whether as the SPAC, the target, or the surviving entity—these regulatory accommodations may apply differently depending on the structure of the deal and whether the combined entity qualifies as an FPI post-merger. That determination must be made within 30 days prior to the de-SPAC merger closing.

Structural Implications: SPAC-on-Top vs. SPAC-on-Bottom

In a de-SPAC transaction, the structural choice—SPAC-on-top vs. SPAC-on-bottom—can significantly influence the post-merger regulatory posture.

• SPAC-on-top: The SPAC remains the public company and absorbs the target. This is typical when the SPAC is a U.S. entity acquiring a foreign or domestic target.
  • Implication: If the SPAC is U.S.-based, the surviving entity will be presumed a U.S. domestic issuer unless it can establish FPI status. This means full compliance with U.S. GAAP, Sarbanes-Oxley, and SEC governance and proxy rules.
  • Note on Cayman Islands Incorporation: Many U.S.-based SPACs choose to incorporate in the Cayman Islands to benefit from tax neutrality and flexible corporate governance structures; however, incorporation location does not affect SEC reporting obligations, which are determined by the SPAC’s principal business operations, listing venue and investor base.

• SPAC-on-bottom: The target remains on top as the surviving company, often through a new holdco, with the SPAC merging into it. This structure is used to help preserve FPI status for a foreign target.
  • Implication: If the foreign entity survives, it may continue to operate as an FPI, use IFRS, and rely on home-country governance exemptions, provided it satisfies the FPI eligibility criteria post-closing.

Choosing the right structure requires balancing regulatory, financial, and business considerations, especially when managing dual accounting standards, shareholder base analysis, and home-country rule adherence.

SPAC/FPI Combinations: Regulatory Scenarios

The regulatory landscape for de-SPAC transactions shifts depending on whether the SPAC or the target (or both) are FPIs, and what structure is used. Here's how different combinations play out:

1. U.S. SPAC + FPI Target (Typically SPAC-on-top)

Pre-Merger (SPAC Stage):

• SPAC follows U.S. domestic issuer rules: It files Forms S-1, 10-K, 10-Q, and 8-K, and complies fully with U.S. SEC and exchange rules.
• Uses U.S. GAAP: All financials must comply with U.S. accounting standards.
• Form S-4 used for proxy/registration statement: Required when registering securities for issuance and soliciting shareholder approval.

Target Financial Statement Requirements:

• Target is co-registrant on Form S-4: The FPI becomes a party to the registration and subject to its disclosure.
• Audited financials required: The target must present 2-3 years of audited financials plus interim data.
• IFRS permitted: Allowed only if the target qualifies as an FPI; otherwise, U.S. GAAP applies.
• PCAOB audit standards: The audit must meet U.S. Public Company Accounting Oversight Board criteria.

Post-Merger:

• FPI determination required: Must be completed within 30 days prior to the closing of the merger.
• If not an FPI: The entity becomes a U.S. issuer, files Super 8-K, 10-K, 10-Q, and complies with U.S. GAAP.
• If FPI: May file Super 20-F, use IFRS, and claim governance exemptions.

2. FPI SPAC + FPI Target (SPAC-on-top or Holdco Structure)

Pre-Merger (SPAC Stage):

• SPAC uses FPI reporting forms: Form F-1, Form 20-F, and F-4 are used instead of U.S. equivalents.
• Uses IFRS: IFRS is accepted without U.S. GAAP reconciliation.
• Home-country governance practices allowed: Must disclose reliance on any exemptions.

Target Financial Statement Requirements:

• Target is co-registrant on Form F-4: Ensures full disclosure.
• May use IFRS if an FPI: Maintains financial reporting consistency.
• PCAOB or ISA audit standards: Audit must conform to recognized international or U.S. standards.
• Subject to S-K Item 10(b) and new Item 1609: These govern financial projections and disclosures.

Redemption Requirements:

• No proxy materials in F-4: FPIs are exempt from Regulation 14A.
• Schedule TO required: Used to disclose terms of redemption rights, treated as a tender offer under SEC rules.

Post-Merger:

• If combined entity qualifies as FPI: Continues using Form 20-F, IFRS, and governance exemptions.

3. FPI SPAC + U.S. Target

Pre-Merger (SPAC is still an FPI):

• Uses Form F-4 for the merger: Appropriate for FPIs registering securities.

Target Financial Statement Requirements:

• Target presents U.S. GAAP financials: As a U.S. company, it must comply with U.S. standards.
• Audit under PCAOB standards: Ensures conformity with SEC oversight.

Redemption Requirements:

• Same as above: FPI SPAC must file a Schedule TO for redemptions.

Post-Merger:

• If combined entity loses FPI status: It must report under Form 10-K and use U.S. GAAP.
• If FPI status is retained: Can continue using IFRS, Form 20-F, and rely on governance exemptions.

Exchange (Nasdaq) Listing and Governance Rules for FPIs

FPIs listing on Nasdaq, for example, benefit from flexibility in governance compliance, provided they meet disclosure obligations under Nasdaq Listing Rule 5615(a)(3). Key Nasdaq accommodations include:

• Board and Committee Exemptions: FPIs may opt out of certain governance requirements—such as having a majority independent board, specific compensation committee composition, and holding regular executive sessions of independent directors—if they follow their home country practices. However, each exemption and the corresponding home-country practice must be disclosed in the issuer’s annual filings.
• Audit Committee: While FPIs are required, under Nasdaq rules, to have an audit committee whose members must meet the independence criteria of Exchange Act Rule 10A-3, in very limited circumstances which typically do not apply, they may follow different home-country standards for audit committee members under the exemption provided in Exchange Act Rule 10A-3(c)(3).
• Compensation Committee: An FPI that follows a home country practice in lieu of the requirement in Rule 5605(d)(2) to have an independent compensation committee must disclose in its annual reports filed with the Commission the reasons why it does not have such an independent committee.
• Shareholder Approval and Voting Rights: FPIs may follow local rules on shareholder approval for stock issuances, M&A, and equity grants.
• Additional Disclosure Obligations:
  • In an IPO with a Nasdaq listing, the FPI must disclose in its registration statement or on its website each Nasdaq requirement that it does not follow and describe the home country practice followed by the FPI in lieu of such requirements.
  • Must promptly disclose material information via Form 6-K if such information is made public in the home country or to shareholders.
• Initial Business Combination Timelines: Nasdaq mandates SPACs complete a business combination within 36 months and meet continued listing requirements post-merger.

Strategic Takeaways for Cross-Border SPAC Transactions

1. Choose the Right Structure:
• Use SPAC-on-bottom if preserving FPI status is critical.
• Use SPAC-on-top when U.S. governance and investor familiarity outweigh foreign issuer flexibility.
2. Confirm FPI Eligibility Early:
• Conduct the FPI status determination at least 30 days prior to closing.
3. Prepare for Financial Alignment:
• Ensure timely audits and reconciliation where applicable (U.S. GAAP vs. IFRS).
4. Plan for Exchange Compliance:
• FPIs must plan and disclose all governance exemptions clearly to avoid listing issues.
5. Address Redemption Disclosure for FPI SPACs:
• Use Schedule TO with full tender offer and redemption-related disclosure under S-K Item 1608.

Final Thoughts

The combination of an FPI with a SPAC opens a path to public markets that balances regulatory efficiency with access to global capital. However, these transactions demand rigor, structure, and foresight. From determining FPI status and accounting standards to understanding exchange rules and structuring the deal properly, cross-border SPACs require a deep grasp of evolving U.S. and international regulatory expectations. With the right strategy, FPIs can harness SPACs to fuel growth while minimizing U.S. compliance burdens.

If you want to learn more about de-SPAC mergers with FPIs or other capital market alternatives for FPIs, please reach out to Paul Levities at Paul@bevilacquapllc.com or (202) 869-0888 (ext. 103). You can also contact us through our general information email at info@bevilacquapllc.com.

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This post contains general information. This post is not intended: (a) to convey or constitute legal advice on any subject matter; (b) to establish an attorney-client relationship; or (c) to be a solicitation. Also keep in mind that prior results in a legal matter do not guarantee a similar outcome in another legal matter.