The UK’s Financial Conduct Authority (FCA) has published its long-awaited statement on Special Purpose Acquisition Companies (SPACs) following Lord Hill’s review of the UK listing regime and subsequent consultation.
The new rules indicate that if a SPAC meets the requisite levels of investor protections and provides sufficient disclosures to mitigate key risks for investors, the presumption of suspension of listing will not apply once an acquisition is announced.
Prior to the introduction of these new rules, other European markets have been seen as the exchange of choice for SPACs on the continent. However, these changes make the UK an additional attractive listing venue in Europe to rival the US – often seen as the centre of the SPAC market.
FCA statement on SPACs
The FCA statement sets out the following requirements in a SPAC to disapply a presumption of suspension:
- A minimum threshold of £100m raised when a SPAC’s shares are initially listed
- A two year time limit to find and acquire a target from admission to listing. This can be extended by 12 months subject to shareholder approval, effectively providing a maximum operating period of three years
- Monies raised are ring-fenced to either fund an acquisition, or be returned to shareholders (in the event of investors redeeming shares or if a SPAC winds-up), less any amounts specifically agreed to be used for a SPAC’s running costs
- The FCA have also introduced an option to extend the time limit by six months which does not require a shareholder vote, in certain limited circumstances
- Any proposed acquisition must have Board approval, excluding from the Board discussion and vote any Board member that is, or has an associate that is, a director of the target or its subsidiaries, or has a conflict of interest in relation to the target or its subsidiaries
- The Board of a SPAC is required to publish a ‘fair and reasonable’ statement if any of the SPAC’s directors have a conflict of interest in relation to the target or any of its subsidiaries, which reflects advice from an appropriately qualified and independent adviser
- Requires shareholder approval for any proposed acquisition, with SPAC founders, sponsors and directors prevented from voting
- Provides a ‘redemption’ option allowing investors to exit their shareholding before any acquisition is completed
- Investors are given sufficient disclosures on key terms and risks from the SPAC IPO through to the announcement and conclusion of any acquisition. This relies heavily on compliance with existing disclosure requirements (such as in the Prospectus Regulation and Market Abuse Regulation (MAR)), with additional clarity on specific disclosures when and after a target is announced
It is clear the FCA is keen to maintain London’s position as the “gold standard” of jurisdictions to list a vehicle and to invest into listed structures. It remains to be seen whether these changes will attract larger numbers of high quality new SPACs to the London Stock Exchange (LSE), which is ultimately the aim of the changes while also providing the level of investor protection that the UK regulator feels is appropriate. As the statement says “Our final rules seek to encourage larger SPACs with experienced management and robust governance”.
The consultation process was launched in April following a huge demand for SPAC listings in New York in 2020. In Europe, the increased SPAC activity on the Euronext exchange, specifically in Amsterdam prompted the FCA to launch a review.
Whether a SPAC promoter chooses to list on the LSE, Euronext or The International Stock Exchange (TISE), our teams in Amsterdam, London, Channel Islands and Luxembourg provide access to not only escrow services and fund administration expertise, but also the advisory corporate governance expertise that will ensure a seamless IPO, transaction and subsequent ongoing running of the merged company. JTC has extensive experience of listings on the LSE, including the servicing of SPACs and welcomes the changes from the FCA.
The new rules and guidance for SPACs come into effect from 10 August 2021. You can download the FCA’s full statement here.