The Financial Conduct Authority has published its final changes to the Listing Rules in order to encourage SPACs (special purpose acquisition companies) to list on the London Stock Exchange. The new rules will come into force on 10 August 2021.
The FCA consulted previously on the listing of SPACs, noting the need to balance investor protection with the desire to encourage SPACs to list on the Main Market.
A SPAC (or blank cheque company) is a shell company which raises cash through an initial public offering of its shares and lists, with the aim of using the funds raised to buy one or more companies later on. Prior to the new rules coming into force, there was a presumption that the FCA would suspend the listing of a SPAC when the SPAC identified a potential acquisition target. This was to protect investors from disorderly markets due to there being insufficient information available to the public at that stage. However, investors saw the suspension as detrimental as they could not then sell their shares, possibly for months.
The FCA has now resolved the issue by removing the presumption of suspension provided the SPAC meets the following criteria:
- raise at least £100 million from public shareholders at listing.
- find a target company and complete the acquisition within two years, extendable to three years with shareholder approval. The period can be extended for a further 6 months without shareholder approval in certain circumstances to complete a well-advanced acquisition.
- ring-fence funds raised from the public so that they are preserved either to fund an acquisition or be returned to shareholders, less any specifically agreed SPAC running costs.
- obtain shareholder approval for any proposed acquisition, based on sufficient disclosure of key terms and a fair and reasonable statement where any conflict of interest arises between any of the SPAC directors and the target company.
- provide a redemption option, allowing investors to exit a SPAC before any acquisition is completed.
- disclose sufficient information to investors on key terms and risks at various stages in the SPAC’s lifecycle.
The FCA is further supporting SPACs by agreeing to provide more comfort at the point of listing that the presumption of suspension will not apply. Previously, the FCA had said that it would not confirm whether a SPAC would avoid suspension until it had identified its target. This will afford SPACs which meet the criteria greater confidence that their shares will remain listed and provide market fluidity to investors.
The opinions expressed are those of the author and do not necessarily reflect the views of the Firm, its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.