Dechert LLP

On 30 April 2021, the FCA consulted on proposals to change the UK Listing Rules to remove the presumption that the listing of a Special Purpose Acquisition Company (“SPAC”) be suspended when it identifies a potential acquisition target, where the SPAC meets certain criteria. This was seen a significant barrier to listings of SPACs in the UK, following the “SPAC boom” in the U.S. and continental Europe during 2020.

Following its consultation, on 27 July 2021, the FCA published a policy statement setting out the final changes to the UK Listing Rules applicable to SPACs which took effect on 10 August, 2021 (click here to read the statement).

The changes aim to create an environment where:

  • There are increased investment opportunities for investors and for issuers to access capital on UK markets on appropriate terms;
  • Public shareholders in such SPACs have appropriate control and protections over their investment;
  • Fewer conflicts of interest issues arise in SPAC structures; and
  • Adequate disclosures are provided to support investment decisions and maintain market integrity, without relying on suspension.

As such, the changes are designed to remove barriers to SPAC listings in the UK and provide more flexibility to market participants.

SPAC vehicles are increasingly popular in the life sciences and health care sector, as businesses look to benefit from a less onerous and burdensome route to accessing public capital. Recently announced transactions include:

  • Pear Therapeutics, Inc (a digital therapeutics start-up backed by Softbank) and Thimble Point Acquisition Corp (a SPAC) announced in June a merger transaction with a pro forma equity value of approximately US$1.6 billion.
  • Also in June, Babylon Health (a UK digital health business) announced a merger with Alkuri Global Acquisition Corp. (a SPAC) with an initial pro forma equity value of approximately US$4.2 billion.

The specific changes as set out in the FCA’s policy statement are summarised below.

Criteria for disapplication of presumption of suspension

The presumption of suspension will not apply where the below criteria are met.

Size threshold

  • SPACs must raise an aggregate gross amount of £100 million from public shareholders at the date of admission to listing.
  • This excludes any funds the sponsors have provided, whether in return for shares or through a general cash injection in the company.

Note: The FCA initially proposed a £200 million threshold, but accepted that a lower threshold of £100m will be sufficiently high to achieve the intended benefit of this approach, while being more appropriate to the relative size of likely targets in a UK context.

Ring-fenced cash for acquisition, redemption or repayment purposes

  • SPACs should adequately ring-fence, via an independent third party, the proceeds raised from public shareholders, either to fund an acquisition, or be returned to shareholders (in the event of investors redeeming shares or if the SPAC is wound up), less any amounts specifically agreed to be used for the SPAC’s running costs.

Time limit for making an acquisition

  • SPACs should have a time limit imposed, in their articles of association or equivalent constitutional document, to find and acquire a target within two years of admission to listing, which may be extendable by 12 months subject to approval by its public shareholders. There is an option to extend the time limit by six months without a shareholder vote in certain limited circumstances. At the end of the two-year (or appropriately extended) period, if the SPAC has not managed to complete its acquisition, the ring-fenced proceeds should be returned to shareholders.

Board approval of a transaction

  • SPACs are required to obtain board approval for any proposed transaction, and exclude from the board discussion and vote any board member who:
    • Is a director of the target or a subsidiary of the target, or has an associate who is a director of the target or any of its subsidiaries; or
    • Has a conflict of interest in relation to the target or its subsidiaries.
  • The FCA does not intend to prevent a director from participating in board approval due to having a general financial interest in the SPAC, including where they hold ‘sponsor’ shares.

Shareholder approval of a transaction

  • SPACs are required to obtain shareholder approval for any proposed acquisition, with a majority vote in favour being required to proceed with a deal. SPAC founders, sponsors and directors are precluded from voting.

Fair and reasonable statement on the terms of an acquisition

  • Where any of the SPAC’s directors has a conflict of interest in relation to the target or a subsidiary of the target, the board of the SPAC should publish a statement that the proposed transaction is fair and reasonable as far as the public shareholders of the company are concerned. This statement should reflect advice by an appropriately qualified and independent adviser.

Redemption of option for shareholders

  • SPACs should provide a redemption option to shareholders. This should specify a predetermined price at which shares will be redeemed, which could be a fixed amount or fixed pro rata share of the cash proceeds ring-fenced for investors, less pre-agreed amounts the SPAC retains for its running costs.

Disclosure

A SPAC must undertake to provide, at the time it announces a target to the market, the following information.

  • A description of the target business, links to all relevant publicly available information on the proposed target, any material terms of the proposed transaction, and the proposed timeline for negotiations.
  • An indication of how the SPAC has, or will, assess and value the identified target.
  • Any other material details and information that the SPAC is aware of, or ought reasonably to be aware of, about the target and the proposed deal, which an investor in the SPAC needs to make a properly informed decision.

The announcement should identify any information described above that has not been included because it is not known at the time and make further announcements to provide such information when available, with sufficient time before the shareholder vote for the approval of the acquisition takes place.

Supervisory approach

The FCA states that it will work with SPACs and their advisors to provide comfort prior to admission that the SPAC meets the criteria for disapplication of the suspension presumption, rather than at the point that an announcement of an acquisition is to be made.

A SPAC which meets the criteria for the disapplication of the suspension presumption will generally be treated similarly to commercial companies, whereby the FCA expects compliance with the Listing Rule, UK MAR and its general suspension powers apply.

Where the FCA has given comfort prior to admission that a SPAC does meet the criteria, a SPAC should still contact the FCA:

  • Before announcing a reverse takeover which has been agreed or is in contemplation, in order for the SPAC to re-confirm it meets the criteria, and to discuss its proposed announcement of a target; and
  • If there has been a leak, to inform the FCA of the action it has taken or will take.

SPACs must notify the FCA if the criteria for disapplication of suspension no longer apply.

Further investor protection or sustainability measures

In its consultation, the FCA sought views on whether there are further measures or different approaches that could be taken to ensure adequate protection for investors. This included whether the FCA’s approach to SPACs could be differentiated for vehicles focused on sustainability and investing based on environmental, social and governance (ESG) factors.

The FCA set out in the policy statement that it would not be taking any additional measures but that this would be kept under review; the FCA will monitor how SPACs are distributed and marketed. The FCA may consider further consumer communications or warnings in future if it sees any evidence that SPACs are attracting or being marketed to investors who may not understand the features and risks involved.

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