DLA Piper worked together on the deal with Credit Suisse which served as the financial adviser to Heckmann.

The deal utilised a special purpose acquisition vehicle (SPAC), a structure not currently recognised in Australia, but one which appears to be a developing trend across the US and into Asia.

Stephen Peepels, Head of DLA Piper’s US Capital Markets practice in Asia, led the deal, and described the SPAC as “the type of deal that has got hot lately.”

“Three years ago I don’t think anybody was ever part of a SPAC. A bunch of them got done during 2007 and it was very, very unique because basically the investors — the public IPO investors — buy into the company in the belief of the management of the company and its vision and nothing else,” he explained.

“At the time that a SPAC generally goes public it has no operations at all, it’s just a team that is raising capital with the idea that they’re going to use the capital that is raised in the IPO to acquire a business and run that business.”

The deal’s usage of a SPAC is a development worth watching for Australian lawyers, Peepels said. DLA Phillips Fox partner Catherine Merity agreed, predicting that the use of this structure by US companies seeking to invest in the emerging markets is likely to increase, particularly in China and India.

The acquisition model has yet to emerge in the Australian market, but Merity did not rule out the possibility. “A SPAC is [essentially] a shell company which is incorporated and listed with a view to acquiring a business within two years of the IPO. Whilst the ASX allows investment funds to list (provided that certain criteria are met), it does not currently specifically allow for a SPAC-type structure,” she said.

Aside from the relatively recent genesis of the acquisition structure, the deal was further complicated by the requirements of the Chinese securities market. Peepels believes that this is the first time a SPAC has completed an acquisition in China.

“In a transaction like this, [the complexity arises from] the fact that the Chinese company is inherently doing business in China — its corporate governance and management structure is based on the way business is done in China,” Peepels said. “As a US publicly trading company, Heckmann Corporation is subject to all the corporate US governance standards.

“Even though Heckmann itself is a publicly trading company, its real offering company is going to be China Water so we’ll need to run China Water as a US publicly trading company, not as a local Chinese company.”

The scale and business potential of the deal cannot be overemphasised, according to Peepels.

“The fact is that Dick Heckmann, who runs Heckmann Corporation, he’s a water guy. He ran US Filter before. US Filter was a huge water purifier and reseller in the United States — a public company which was eventually acquired by Vivendi, which is one of the largest consumer water and foods companies.

“So he’s run a really prominent water company before and now he’s going to be putting his energies into running a Chinese water company, [in] the biggest market in the world that’s totally unexploited at this time. So this is an exciting deal from that perspective as well.”

This is the second large transaction for DLA Piper involving China Water in the past six months. DLA Piper also represented Roth Capital Partners in a Private Investment in Public Equity (PIPE) transaction for China Water in late 2007.

Legal closing of the Heckmann China Water transaction is expected later this year.

By Laura MacIntyre