In 2010, the Listing Rules were amended to introduce a new “Standard” segment to the main market of the London Stock Exchange (LSE). Standard Listings are only subject to the minimum EU requirements for a listing, whereas the Premium segment remains as the super-equivalent primary listing with more onerous standards than those required by the Prospectus Directive.
The Standard segment initially got off to a slow start due in part to concerns among the investor community about insufficient liquidity and less stringent regulations, for example lower corporate governance requirements and the absence of a sponsor or nomad to police transactions which could leave the door open to abuse.
However, in recent years there has been a notable rise in the number of companies choosing to list on the Standard segment, particularly cash shells or SPACs (special purpose acquisition companies). Cash shells are new companies generally founded by experienced entrepreneurs with the sole objective of raising capital to identify and acquire a suitable business opportunity. Notable examples include:
- Horizon Acquisition Company plc (which was backed by Hugh Osmand and raised £417.7m, subsequently acquiring APR Energy for £527m);
- Vallar plc (which was backed by Nat Rothchild and raised £687m million and subsequently acquired Indonesian coal miner Bumi Resources, although this did lead to well publicised difficulties);
- Justice Holdings Limited (which raised £900m and subsequently acquired an interest in Burger King);
- Vallares plc (another of Nat Rothchild’s vehicles which raised £1.35bn and subsequently acquired Genel Energy International, the largest oil producer in the Kurdistan Region of Iraq);
- Platform Acquisition Holdings Limited (which raised US$860m and subsequently acquired the chemicals company MacDermid for US$1.8bn);
- Nomad Holdings Limited (which raised US$474m and subsequently acquired Europe’s biggest frozen foods business, Iglo Foods Holdings for $2.6bn); and
- Atlas Mara (which was founded by Bob Diamond and Ashish Thakkar raising US$300m to acquire major stakes in banking assets across Africa).
In addition to these larger cash shells which have been used for significant fundraisings and acquisitions, the Standard segment has also been used to list smaller cash shells raising sums in the low millions. Historically, AIM was the primary market on which to list smaller cash shells until the LSE increased the minimum fundraising requirement from £1m to £3m and increased the restrictions on an issuer’s investment policy.
Charles Russell Speechlys have advised on a number of SPACs listing on the Official List over the past two years including Auctus Growth plc, Mithril Capital plc and Cleeve Capital plc and we are currently instructed on others.
This briefing examines the advantages of a Standard Listing for a cash shell and some associated issues.
REASONS FOR LISTING AND MINIMUM LISTING CRITERIA
A standard listing offers several potential benefits that may appeal to issuers:
- it gives companies access to the main market of the LSE;
- there is no requirement to have a minimum trading history;
- there is no requirement to appoint a sponsor or a nomad;
- shareholder approval is not required for significant transactions (including reverse takeovers) under the class tests, which is a major benefit to acquisitive companies and cash shells;
- sponsor or nomad approval is not required for related party transactions;
- an issuer is not required to offer new shares on a non-pre-emptive basis to shareholders (subject to statutory requirements);
- the Model Code does not apply in respect of dealing in the securities of the issuer by directors and employees (subject to insider dealing and market abuse laws);
- the size and price of share issuances are not subject to the restrictions and requirements of Premium listed companies (although an issuer must publish a prospectus if it issues, over a further 12-month period, further securities representing 10% or more of the securities of a class already admitted to trading); and
- it can be significantly cheaper than an equivalent listing on AIM.
An issuer must comply with the following requirements:
- it must prepare a prospectus which must be vetted and approved by the UK Listing Authority (UKLA);
- it must have a market capitalisation of at least £700,000; and
- it must have a “free float” of at least 25% in public hands (i.e. shares held by persons other than management, shareholders subject to a lock-in, shareholders with 5% or more and connected parties).
A management team or group of investors considering establishing a Standard listed cash shell should consider the following points.
The involvement of the UKLA in determining the eligibility of the issuer and approving the prospectus can take longer than it would for an AIM listing where a Nomad would take the lead on such matters. The UKLA will need to understand the reasons for listing the business, that it is a suitable business for a listing, that the directors have the necessary experience for a listed entity, and that the directors and founders are fully disclosed and free from any criticism or adverse judgments.
Although the minimum market capitalisation is only £700,000, the UKLA may question whether the company can achieve its investment policy with such limited working capital. The UKLA will particularly focus on references to working capital requirements in the prospectus and any risk factors which may cut across the working capital assumptions.
One key advantage of listing a cash shell on the Standard segment is the flexibility to appoint advisors as and when the issuer needs them and not simply because the rules require it. This can help to ensure low running costs until the issuer starts its acquisition programme. However, although there is no need to retain a sponsor or broker, they may be appointed on a voluntary basis and issuers may well benefit in particular from having brokers and market makers to support the market in their shares. Moreover, an important practical point to bear is mind is that there is a significant amount of administration involved in managing the listing process and in particular the fundraising which a corporate finance adviser or broker would typically manage. In the absence of such advisers, some of this administration may fall on the management team which can be very time consuming and is easily underestimated.
In many cases, the Standard listing will be a stepping stone with the company moving to a Premium listing or onto AIM after it has completed its acquisition programme (although there has been an interesting trend of companies choosing to maintain their Standard listing after completing their acquisition(s), for example Genel Energy plc and APR Energy plc). Therefore, the relevant eligibility requirements of the relevant stock exchange would have to be complied with at that time. So for example, if the company wished to trade on the Main Market (either Premium or Standard) it would need to maintain a minimum free float of 25% of the enlarged company which could limit the number of consideration shares that could be issued to the shareholders of a target company.
In conclusion, there are clear signs that the Standard segment is gaining greater acceptance as an alternative to listing on the Premium segment or on AIM and for cash shells in particular there are clear advantages particularly when compared with AIM.