Key proposed changes to the UK listing regime include the removal of the presumption of suspension in trading in a SPAC’s shares when it announces a potential acquisition, subject to certain qualifying criteria being met.
The UK Financial Conduct Authority (FCA) opened its consultation on proposed changes to the UK Listing Rules for certain special purpose acquisition companies (SPACs) on April 30, 2021. The consultation launch follows the publication on March 3, 2021, of the results of the UK government’s UK Listing Review, chaired by Lord Jonathan Hill, which recommended changes to the listing regime to increase the attractiveness of UK listings for SPACs while developing market and investor safeguards.
In particular, the FCA’s consultation considers the proposed removal—for SPACs meeting certain criteria—of the existing presumption of suspension for a SPAC’s listed shares when it announces a potential acquisition. The goal is to increase investment opportunities by removing disproportionate barriers to listing for larger SPACs that have high levels of structural investor protections. The FCA believes that this will provide a more flexible regime and align more closely with other international markets. While the proposed changes would mean that investors in qualifying SPACs should be able to continue trading their shares after announcement of a proposed acquisition, the presumption of suspension would continue to apply to any SPACs not meeting the qualifying criteria.
QUESTIONS SUBJECT TO CONSULTATION
The FCA aims to balance flexibility with investor protections when determining appropriate qualifying criteria, and seeks responses to 20 questions covering (among other matters) the following:
- Size thresholds: Whether a minimum initial capital-raising threshold for SPACs is an appropriate criterion (and, if so, what the threshold should be—the FCA proposes the raising of aggregate cash proceeds of at least £200 million (approx. $278 million)).
- Ring-fencing proceeds: Whether proceeds (less any specified amount for SPAC running costs) should be ring-fenced by the SPAC for use in funding an acquisition, redemption, or repayment event.
- Time limits: Whether time limits on SPAC operations are appropriate (the FCA proposes a requirement that SPACs should find and acquire a target within two years of admission to listing, with a possible 12-month extension).
- Board approvals: Whether board approval should be required for a proposed acquisition and, if so, whether interested or conflicted directors should be excluded from votes (e.g., where directors are conflicted as a result of the SPAC’s allocation of shares to founders and directors).
- Shareholder approvals: Whether shareholder approval should be required for a proposed acquisition, and whether SPAC sponsors should be excluded from votes.
- Reasonableness statement: Whether a “fair and reasonable” statement should be published to shareholders based on advice from an appropriately qualified and independent adviser and, if so, whether this should be required for all transactions or only those where any of the SPAC’s directors have a conflict of interest.
- Redemption: Whether the SPAC should include a redemption option for shareholders (allowing investors to exit the SPAC before any acquisition is completed, at a predetermined price, which could be a fixed amount or a fixed pro rata share of the cash proceeds ring-fenced for investors).
- Disclosure: Whether proposed disclosure requirements will be sufficient, i.e., disclosure of the SPAC’s structure, arrangements, and risks at different stages of its lifecycle (taken together with existing disclosure and transparency requirements, including under the existing prospectus and market abuse regimes).
- Supervision: The FCA proposes that, before announcing a proposed acquisition, the SPAC’s board confirm in writing to the FCA whether the SPAC meets the criteria described, and subsequently notifies the FCA if the SPAC makes changes to, or removes, any of the specified investor protection measures.
- Other protections: Whether any other investor protections would be beneficial, e.g., marketing restrictions to less sophisticated investors.
- Differentiation: Whether different approaches for SPACs with particular focuses should be considered, e.g., modified criteria (such as a lower initial capital-raising threshold) for SPACs developing green technologies or focused on sustainability or other environmental, social, and governance (ESG) factors.
- The FCA’s consultation on SPACs is open for comments until May 28, 2021, with an intention that the new measures will be introduced by summer 2021.
- The FCA will launch a further consultation in summer 2021 in relation to proposed changes to the Listing Rules more generally, in response to Lord Hill’s UK Listing Review.
Historically, there have been relatively few SPACs or other forms of cash shell listed on the UK markets, with most of those raising relatively small amounts (less than £10 million (approx. $13.9 million)). The presumption that trading in a SPAC’s shares will be suspended upon announcement of a potential “de-SPAC” transaction has been seen as one of the key obstacles to listing SPACs in the United Kingdom, as it removes the ability for SPAC investors to exit their investment if they are unenthusiastic about the proposed target.
The extremely active SPAC market in the United States has led to a reevaluation of listing regimes in relation to SPACs, not just in the United Kingdom, but in a number of other key financial centers around the world. In part this is a response to investor demand, but there is no doubt also a concern that, as the number of suitable US targets for US SPACs diminishes, US SPACs will increasingly turn to overseas markets for potential targets. This leads to a further concern that next generation companies in those jurisdictions could end up listed in the United States, rather than on home markets. In addition, in the United Kingdom there may also be a concern with a perception that Amsterdam may be starting to establish itself as a hub for listed SPACs in Europe.
Whether the proposed changes to the UK regime will lead to a surge in the listing of SPACs in the United Kingdom, or whether, as the FCA itself states, SPACs are “likely to remain a modest feature of UK markets,” remains to be seen.