The UK's Financial Conduct Authority (FCA) has published the final changes to the Listing Rules for special purpose acquisition companies (SPACs).
A SPAC is a shell company which raises funds on an initial public offering (IPO) of its shares. It then uses the funds raised to acquire one or more operating companies.
One of the features of the UK regime that has been seen as a deterrent to SPAC listings in the UK is the presumption in the Listing Rules that a SPAC’s listing will be suspended when it identifies a potential acquisition target. The FCA consulted in May 2021 on removing this presumption where certain features apply, whist incorporating investor protections. See our briefing here for details of the consultation and the FCA’s proposals.
The FCA has finalised the Listing Rule changes largely as consulted upon and described in our earlier briefing, subject to the changes highlighted below.
Under the new rules published by the FCA, the presumption of suspension will not apply where the following criteria are met:
- Size - the SPAC will have to raise proceeds of at least £100 million from public shareholders on listing. This excludes funds raised from its founders, directors, or others who otherwise promote or support the SPAC operationally. The amount has been reduced from £200 million proposed in the consultation.
- Ring-fenced proceeds – the monies raised will have to be ring-fenced either to fund an acquisition or to be returned to shareholders, less any amounts specifically agreed to be used for funding the SPAC’s running costs.
- Time limit for making an acquisition – the FCA has introduced an option to extend the proposed two year time-limited operating period (or three year period if extended with shareholder approval) by six months, without the need to get shareholder approval. The additional six months will only be available in limited circumstances and is intended to provide more time for a SPAC to conclude a reverse takeover where a transaction is well-advanced.
The FCA notes that the circumstances where an extension without shareholder approval may be permitted include where the SPAC is in the process of getting shareholder approval for an acquisition (eg a shareholder meeting has been convened), or has already gained approval and requires more time to complete the final stages of a transaction. The use of the additional six month extension must be notified to the market before the end of the two year period (or three year period if extended). This means a maximum operating period of a UK-listed SPAC using the new alternative approach to suspension will be 42 months.
- Board and shareholder approval of a transaction and ‘fair and reasonable’ statement – shareholder approval will be required for any proposed acquisition, based on sufficient disclosure of key terms and a ‘fair and reasonable’ statement will be required where any of the SPAC directors have a conflict of interest in relation to the target company. SPAC founders, sponsors and directors are prevented from voting.
- Redemption option for shareholders – shareholders should have a redemption option at the time of any acquisition. This will allow them to exit before completion of an acquisition.
- Disclosure - appropriate disclosures must be made to investors at appropriate stages in the SPAC’s lifecycle, including disclosures in the initial prospectus and in relation to any final transaction where a new company is acquired.
FCA’s supervisory approach
The FCA have modified their supervisory approach to provide more comfort prior to admission to listing that the presumption of suspension will be disapplied, rather than only at the point of an announcement.
This is discussed further at Chapter 3 of the Policy Statement. The FCA states that they will work with issuers and their advisers to ensure that comfort is achieved as part of vetting the prospectus and assessing eligibility for listing. At the point of announcement of an acquisition, the FCA would not expect to revisit their previous assessment, provided the SPAC issuer confirms the conditions are met. In the event of a leak, the FCA will consider whether a suspension is necessary in line with its general suspension powers for commercial companies.
Next steps and impact of the proposals
The changes take effect on 10 August 2021. They form part of a larger review of UK markets following the end of the Brexit transition period the review of the UK listing regime carried out by Lord Hill.
The FCA’s modification of their supervisory approach will be welcomed by investors as it provides greater certainty at the listing stage that a SPAC will benefit from the removal of the presumption of suspension.