Return of the SPAC? – Listing Rules Changes for UK SPACs
In an effort to encourage a greater number of special purpose acquisition companies (SPACs) to list in the UK, the Financial Conduct Authority (FCA) has made a number of changes to the Listing Rules. Such changes came into effect on 10 August 2021.
As explained in our previous article, SPACs are companies that are formed to raise investment capital through an initial public offering (IPO) in order to fund the acquisition of an existing company. If no acquisition is made within a certain period of time (usually two years), the funds are returned to the investors.
Compared to other jurisdictions, such as the US, SPAC activity on the London markets has been negligible, with the main deterrent considered to be the suspension of trading in a SPAC’s shares once it announces a potential acquisition. This results in all investors being locked in while the SPAC is undergoing a reverse takeover and preparing the enlarged group for a new listing. Consequently, any investors who do not approve of the acquisition are unable to dispose of their shares until after completion.
Following Lord Hill's review of the UK’s listing regime and recommendation report, an FCA consultation and an FCA policy statement, the Listing Rules have now been amended in an attempt to make the UK a more attractive venue for SPAC IPOs, while ensuring adequate protection for investors.
What are the changes to the Listing Rules?
Simply put, the presumption that trading in a SPAC’s shares will be suspended as soon as it announces a potential acquisition has been removed, provided that the SPAC meets the following conditions:
- At least £100 million must be raised at the IPO stage.
- The monies raised by the IPO must be ring-fenced to be used only to fund an acquisition or returned to investors (subject to any specified running costs of the SPAC).
- Shareholders can redeem their shares at a pre-determined price prior to completion of the acquisition.
- Approval of the acquisition by the SPAC’s board (excluding any directors with a conflict of interest).
- The publication of a “fair and reasonable” statement written with the advice of an independent and qualified adviser if any of the SPAC’s directors have a conflict of interest in relation to the acquisition.
- Approval of the acquisition by the shareholders (excluding the founders, sponsors and directors).
- A time limit of two years in which to complete an acquisition, which can be increased to three years if the shareholders agree. A six-month extension is permitted without shareholder approval if the acquisition is well advanced.
- Adequate disclosure of the key terms and risk factors from the time of the IPO through to completion of the acquisition.
SPACs that do not meet these requirements may still be listed, but the presumption of suspension will continue to apply to them.
The FCA has also stated that it will modify its supervisory approach such that SPACs will receive greater comfort prior to a listing that they fall within the new non-suspension regime.
The future of SPACs
The FCA’s revised approach seeks to provide larger SPACs and their investors with more flexibility, removing a significant disincentive to list in London and although the jury is still out on whether the new SPAC regime will lead to an influx of SPAC listings on the London markets, it will be interesting to see what the next couple of years brings. What is clear however, is that although the debate as to whether the UK will become the centre for SPAC activity remains open, the FCA’s flexible and market-oriented approach has been broadly welcomed.
This note reflects our opinion and views as of 11 October 2021 and is a general summary of the legal position in England and Wales. It does not constitute legal advice.