On 30 April 2021, the FCA published Consultation Paper 21/10: Investor protection measures for special purpose acquisition companies: Proposed changes to the Listing Rules (CP21/10).
A special purpose acquisition company (SPAC) is a type of company formed to raise money from investors, which it then uses to acquire another operating business. SPACs are already permitted to list in the UK.
The FCA currently estimate there are 33 SPACs listed in the UK. Of these, 40% (13) currently have their listing suspended. Of the estimated 20 SPACs with live listings, 2 have a size exceeding £100m market capitalisation, while two thirds are worth around £5m or less.
The UK Listing Review, Chaired by Lord Hill, made a recommendation to the FCA to consider changes to the Listing Rules in relation to SPACs in its final report published on 3 March 2021. This proposal, alongside wider market feedback and evidence from the US market, has further informed the FCA’s consideration of the issues and consultation proposals.
In CP21/10 the FCA sets out proposals that will amend its rules so as to allow an alternative approach for listed SPACs that are able to demonstrate higher levels of investor protection. At the moment a SPAC listing is typically suspended at the point it identifies an acquisition target. Suspension is intended to preserve market integrity during a period when limited information on a prospective deal could result in disorderly trading in a SPAC’s shares. However, the suspension means that investors are locked into a SPAC at the point a target is announced which can be for many months prior to completion. The FCA is proposing that SPACs that comply with higher levels of investor protection should not be subject to this requirement.
The disclosure and investor protection features the FCA propose for SPACs in order to avoid suspension, and on which CP21/10 seeks feedback, include:
- Setting a minimum amount of £200m to be raised when a SPAC’s shares are initially listed, to encourage a high level of institutional investor participation.
- Ensuring monies raised from public shareholders are ring-fenced to either fund an acquisition, or be returned to shareholders, less any amounts agreed to be used for the running costs of the SPAC.
- Ensuring shareholder approval for any proposed acquisition, based on sufficient disclosure of key terms and a confirmation that terms are fair and reasonable if any of the SPAC’s directors have a conflict of interest relating to a target company.
- A ‘redemption’ option allowing investors to exit a SPAC prior to any acquisition being completed, and a time limit on a SPAC’s operating period if no acquisition is completed.
- Sufficient disclosures being provided to investors on key terms and risks from the SPAC IPO through to the announcement and conclusion of any reverse takeover deal.
SPAC issuers unable to meet the conditions, or those choosing not to, will continue to be subject to a presumption of suspension.
The deadline for comments on CP21/10 is 28 May 2021.