Compliance

UK Regulator Consults On SPAC Listing Regime Tweaks

Tom Burroughes, Group Editor, 4 May 2021

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A torrent of SPAC listings has taken place, particularly on Wall Street, and there are 33 estimated to be in play in the UK. It has been recommended that the Financial Conduct Authority should examine listing rule changes for these entities.

The UK’s Financial Conduct Authority is consulting market players on proposed changes to listing rules for Special Purpose Acquisitions, aka the blank cheque firms that have surged in recent months, especially in the US. 

The watchdog is thinking of amending rules to allow an alternative approach for listed SPACs which are able to show higher levels of investor protection, it said in a statement late last week. 

A big rise in the number of listed SPACs in the US, for example, has prompted concerns that these entities constitute a bubble, and that investors could be burned. A chunk of the rise in global initial public offerings recently encompasses SPACs. Wealth management firms and private banks have become involved in the space. A buoyant equity market, a hunt for yield and period of ultra-low interest rates have fuelled SPAC listings.

The FCA thinks that there are 33 SPACs listed in the UK. Of these, 13 have had their listings suspended. Of the estimated 20 SPACs with live listings, two have a market capitalisation of more than £100 million ($139.2 million), while two thirds are worth around £5 million or less.

The UK Listing Review, chaired by Lord Hill, recommended that the FCA consider changing listing rules for SPACs in its final report published on 3 March 2021.

At the moment, a SPAC listing is typically suspended at the point at which it identifies an acquisition target. This is designed to protect market integrity during a period when limited information on a prospective deal could result in disorderly trading in a SPAC’s shares. However, suspension results in investors being locked into a SPAC at the point when a target is announced, potentially for many months prior to completion, which is undesirable for investors and issuers. The FCA is proposing that SPACs which comply with higher levels of investor protection should not be subject to this requirement. 

“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,” Clare Cole, director of market oversight at the FCA, said.

“We would expect our changes to provide a more flexible regime for larger SPACs, while still ensuring investor protections, potentially resulting in a wider range of large SPACs listed in the UK, increased choice for investors and an alternative route to public markets for private companies.”

The disclosure and investor protection features that the FCA proposes SPACs should include to avoid suspension, and on which the consultation seeks feedback, include: 

-- setting a minimum amount of £200 million to be raised when a SPAC’s shares are initially listed, to encourage a high level of institutional investor participation; 
-- ensuring monies 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 confirmation that terms are fair and reasonable 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, who are unable to meet the conditions, or those choosing not to, will continue to be subject to a presumption of suspension, the FCA said.

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