UK Conduct Regulator Consults on Changes to Listing Rules for SPACs04/30/2021The U.K. Financial Conduct Authority has launched a consultation on proposed changes to its listing rules for special purpose acquisition companies. SPACs are companies set up for the purpose of raising money from investors to fund the acquisition of an operating business. They have attracted much attention over the last year as an alternative way for target companies to go public without going through the traditional initial public offering process.
There is currently a presumption that the FCA will suspend the listing of a SPAC when it identifies a potential target for acquisition. Under the proposed rules, the FCA would remove this presumption where a SPAC meets certain investor protection criteria. The proposed changes have been prompted by concerns that suspending listing: (i) may represent a disproportionate barrier to listing for larger SPACs, which may have adequate investor protection measures built into their structures; and (ii) pose a risk to investors, who are tied in to their SPAC investments for an uncertain period and with limited ability to scrutinize the proposed target, since de-listing may reduce liquidity. The move also reflects recommendations made by Lord Hill in the U.K. Listings Review, which observed that SPACs were likely to become an increasingly important source of finance for European companies, but that the FCA's existing ability to suspend listing may deter U.K. SPAC financing.
Under the proposals, a SPAC would need to satisfy a range of requirements to avoid suspension of listing upon identification of a target, including:
- meeting a minimum threshold of £200 million in aggregate gross cash proceeds raised at its initial listing (excluding any funds that the founders or directors of the SPAC have provided);
- having constitutional documents which impose a two-year time limit within which an acquisition must be completed, which may be extended by a maximum of one year, after which public funds should be returned to shareholders;
- using any public funds raised to finance an acquisition or redeem shares from shareholders, as opposed to using them for the running costs of the company; and
- obtaining shareholder approval for any proposed acquisition, on the basis of sufficient disclosure of terms, as well as providing investors with a redemption option before an acquisition is complete.
The FCA's proposed approach would be in line with the U.S. rules, which generally permit trading in SPAC shares to continue after a target has been identified, provided that disclosure requirements are met and the SPAC has certain embedded investor protection measures.
Responses to the consultation should be submitted by May 28, 2021.
View the FCA's consultation paper.
View details of the U.K. Listings Review.
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