The rule changes mostly reflect those proposed in the April 2021 consultation. The key change is that the new regime will apply to SPACs which raise a minimum amount of £100 million at IPO (as opposed to a £200 million threshold proposed in the original consultation).
On 30 April 2021, the UK Financial Conduct Authority (FCA) launched a consultation on proposed changes to the UK Listing Rules for certain special purpose acquisition vehicles (SPACs) (see Morgan Lewis LawFlash of 5 May 2021), aimed at providing more flexibility to larger SPACs listing in the United Kingdom, provided they embed certain features that promote investor protection and the smooth operation of UK markets. On 27 July 2021, the FCA published Policy Statement PS21/10 (PS21/10: Investor protection measures for special purpose acquisition companies: Changes to the Listing Rules (fca.org.uk), which sets out the result of that consultation, including the resulting changes which are to be made to the Listing Rules.
The key change to the Listing Rules is the removal of the existing presumption that a SPAC’s listed shares will be suspended when it announces a potential acquisition. This presumption has long been seen as a significant disincentive to the listing of 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. However, the presumption will only be removed in the case of SPACs which meet certain criteria; the presumption of suspension would continue to apply to any SPACs not meeting the qualifying criteria.
The principal qualifying criteria are summarised below:
- The SPAC must raise at least £100 million in capital when its shares are initially listed
- Funds raised from investors must be ring‑fenced to either fund an acquisition, or be returned to shareholders (in the event of investors redeeming shares, or if a SPAC is wound up, e.g., because it does not find a suitable target), less any amounts specifically agreed to be used for the SPAC’s running costs
- The SPAC must set a time limit of two years from admission to listing to find and acquire a target. This limit may be extendable by 12 months with shareholder approval (so that the SPAC has a maximum operating period of three years). There is also an option to extend the time limit by six months, without a shareholder vote, in certain limited circumstances
- The SPAC board must approve any proposed acquisition, with any interested or conflicted director being excluded from both the board discussion and the vote
- The board must publish a “fair and reasonable” statement to shareholders, based on advice from an appropriately qualified and independent adviser, if any of the SPAC’s directors have a conflict of interest in relation to the target
- Any proposed acquisition must be subject to shareholder approval, with SPAC founders, sponsors, and directors prevented from voting
- Investors must be given the option to redeem their shareholding before any acquisition is completed
- The SPAC must provide to its investors sufficient disclosures on key terms and risks from the SPAC IPO through to the announcement and conclusion of any acquisition (although, in practice, much of this will relate to compliance with existing disclosure requirements, such as under the Market Abuse Regulation).
As a result of concerns expressed in a number of responses to the consultation, the FCA has indicated that it intends to work with issuers and their advisers to ensure that, as part of the process of vetting the prospectus and assessing a SPAC for eligibility for listing, comfort will be given to the SPAC that the qualifying criteria are met and that, provided that continues to be the case, any subsequent acquisition would not be subject to the presumption of suspension. However, SPACs will be under an obligation to notify the FCA if the criteria are no longer met, and required to contact the FCA prior to any acquisition announcement to confirm that the SPAC continues to meet the qualifying criteria. If the criteria are no longer met, the presumption of suspension will apply. The FCA also noted that, if there is a leak prior to the announcement of an acquisition, there may still be a requirement to suspend trading, as would be the case in relation to any other commercial company.
The FCA also included in the April 2021 consultation a general enquiry as to whether it should include further measures or a different approach to ensure adequate protection for investors in SPACs (for example, by imposing restrictions on the marketing of SPACs to retail investors). In the Policy Statement, the FCA concluded that it would be disproportionate to restrict retail access to SPACs at this stage, but specifically noted that it recognises the potential risks of SPACs for less sophisticated investors in particular, and that it will keep the potential need for further or different protections under review, and monitor how SPACs are distributed and marketed.
The changes will come into effect on August 10, 2021.
As noted in our May 5 LawFlash, 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). The changes to the UK rules are clearly intended to make the United Kingdom a more attractive listing venue for larger SPACs and SPAC investors, while seeking to protect the reputation of the UK markets. However, given the perception that the SPAC market in the US may have begun to cool, a key question is whether the rule changes may come too late for the current SPAC wave, or just in time for a rollover of investor appetite into the UK market.