The Financial Conduct Authority (FCA) has published the final rule changes to the Listing Rules (PS 21/10) for special purpose acquisition companies (SPACs).
A SPAC is a shell company which raises funds through an initial public offering (IPO) of its shares and lists, with the objective of using the funds raised to buy one or more companies at a later date. The FCA is seeking to attract more SPAC listings in London whilst at the same time ensuring there is sufficient protection for investors and it consulted on the rule changes in May this year (see this blog post)
One of the features of the current UK listing regime, which is seen as a deterrent to SPACs listing in London, is the general presumption that the FCA will suspend the listing of a SPAC when it identifies a potential acquisition target. The FCA is removing this presumption, provided the SPAC has certain investor protections embedded in it and provides adequate disclosure for investors.
In order to avoid suspension, the protections a SPAC must have include:
- Size – A SPAC will have to raise £100 million or more (down from £200 million which the FCA had originally proposed in the consultation paper) from public shareholders at listing (excluding the SPAC’s founding shareholders, sponsors and directors).
- Time limit for acquisition – The SPAC will have to find its target and complete the acquisition within two years, with an option to extend this period to three years with shareholder approval. There will also be an option to extend it by a further 6 months without the need to get shareholder approval in limited circumstances to provide more time for a SPAC to conclude a reverse takeover where a transaction is well-advanced.
- Ring-fencing – Monies raised from public markets will have to be ring-fenced so that they are preserved either to fund an acquisition or to be returned to shareholders, less any amounts specifically agreed to be used for the SPAC’s running costs.
- Shareholder approval – Shareholder approval will be required for any proposed acquisition, based on sufficient disclosure of key terms and a ‘fair and reasonable’ statement where any of the SPAC directors have a conflict of interest in relation to the target company. SPAC founders, sponsors and directors are prevented from voting.
- Redemption – There will have to be a redemption option, allowing investors to exit a SPAC before any acquisition is completed.
- Disclosure – Sufficient disclosure on key terms and risks will have to be given to investors at the appropriate stages in the SPAC’s lifecycle, from a SPAC’s initial listing to any final transaction that results in the SPAC completing a takeover of another business and establishing a new company.
The FCA had originally said in the consultation paper that it would not confirm whether a SPAC would avoid suspension until it identified its target. The FCA has modified its approach to provide more comfort to SPACs at the point of listing that the presumption of suspension will be disapplied. The FCA says it will work with issuers and their advisers to ensure that such comfort is achieved as part of vetting the prospectus and assessing eligibility for listing. Where a SPAC meets the criteria, it will generally be treated similarly to commercial companies in terms of the application of MAR and the FCA’s general suspension powers.
The changes take effect on 10 August 2021.