On Friday, the FCA published its proposed changes to the UK Listing Rules which apply to special purpose acquisition companies (SPACs). It seems likely that changes will be made to LR 5.6 (Reverse takeovers) and to the Technical Note which covers cash shells and SPACs (currently UKLA / TN / 420.2). If these changes are implemented, a SPAC which satisfies certain criteria will not be suspended from listing when a potential acquisition target is identified and its shares will continue to trade.
These proposals were flagged by the FCA on 31 March 2021 and do not come as a surprise. We covered them in an earlier post which can be accessed here: https://blog.burges-salmon.com/post/102gulq/fca-announces-consultation-on-special-purpose-acquisition-companies-spacs-an-e
However, just as the FCA sets out its stall, the FT reported on Monday this week that Spac share prices have slumped as investor enthusiasm wanes (see https://www.ft.com/content/c7c0f11c-b678-491d-9173-fe49ea29b4b8). It will be interesting to see whether the FCA has missed the SPAC boom or whether these proposals will result in SPACs becoming a regular feature of the London market - currently the FCA estimates that only 33 SPACs are listed in London.
The attitude of institutional investors in the UK may still mean that SPACs struggle to gain acceptance. Since we do not have a crystal ball, the rest of this post sets out the key proposals contained in the FCA's consultation paper. The key proposed change is that the listing will not be suspended when a potential acquisition target is identified if a SPAC has certain features built into its structure and provides certain disclosures to protect investors. Currently a SPAC listing is typically suspended at that point in the absence of sufficient publicly available information about the proposed transaction.
The FCA will publish guidance detailing a set of criteria (including both structural features and disclosures) which it will expect a SPAC to meet to discharge the FCA's presumption of suspension.
The proposed criteria include:
- setting a minimum amount of £200m to be raised when a SPAC’s shares are initially listed
- ensuring funds raised from public shareholders are ring-fenced to either fund an acquisition, or be returned to shareholders, less any amounts agreed to be used for the running costs of the SPAC
- ensuring shareholder approval for any proposed acquisition, based on sufficient disclosure of key terms and a "fair and reasonable" statement if any of the SPAC’s directors have a conflict of interest relating to a target company
- a "redemption" option allowing investors to exit a SPAC prior to any acquisition being completed, and a time limit on a SPAC’s operating period if no acquisition is completed and
- sufficient disclosures being provided to investors on key terms and risks from the SPAC IPO through to the announcement and conclusion of any reverse takeover deal.
SPAC issuers which are unable to meet the conditions (for example smaller SPACs), or those choosing not to, will continue to be subject to a presumption of suspension. In effect, the status quo reflected in the current Listing Rules will continue to apply to them.
The full consultation paper (Investor protection measures for special purpose acquisition companies: Proposed changes to the Listing Rules CP21/10) is available here: https://www.fca.org.uk/publications/consultation-papers/cp21-10-investor-protection-measures-special-purpose-acquisition-companies-proposed-changes-listing. The consultation is open for four weeks.
It will be interesting to see whether this new approach to domestic policymaking is reflected in other initiatives from the FCA which seek to increase the number of companies joining the UK's capital markets. If these rules changes increase the number of SPACs listing in London the FCA may consider whether a separate SPAC listing category is required to sit alongside the current options for listing.
For anyone thinking that SPACs offer a light touch route to listing in London, the FCA notes that: "It is important, though, that target companies and their management do not consider SPACs to be an alternative to the rigours of public market transparency and obligations. Any new operating company that emerges from a SPAC acquisition will need to apply for a new listing, and demonstrate that they satisfy the eligibility criteria, as well as meeting ongoing requirements if admitted."
Clare Cole, Director of Market Oversight at the FCA explained that: "We are consulting on a set of clear conditions based on which we will not look to suspend the listing of a SPAC. These changes should encourage issuers that are willing to provide transparency and strong protections to investors. This should support market confidence and aligns our approach more closely with standards in other international markets."