Listing regime – FCA consultation on SPACs

The FCA has published a consultation paper on investor protection measures for special purpose acquisition companies (SPACs). It is proposing to amend the Listing Rules for SPACs that have stronger investor protection features.

A SPAC is a shell company which raises funds through an initial public offering (IPO) of its shares and lists, with the objective of using the funds raised to buy one or more companies at a later date. There has been a resurgence of SPACs recently, particularly in the US, and the FCA is seeking to attract more SPAC listings in London.

One of the features of the current UK listing regime, which is seen as a deterrent to SPACs, is the general presumption that the FCA will suspend the listing of a SPAC when it identifies a potential acquisition target. The FCA is proposing to remove this presumption, provided the SPAC has certain investor protections embedded in it and provides adequate disclosure for investors.

However, the FCA will not confirm whether a SPAC will avoid suspension until it identifies its target (and it will have to contact the FCA prior to announcing the transaction), even though some of the investor protection requirements will apply when the SPAC lists.

The features that the FCA is proposing that a SPAC must have in order to avoid suspension include:

• Size – It will have to meet a minimum size threshold. The FCA is proposing to require the SPAC to raise £200 million or more from public shareholders (excluding the SPAC sponsors) at the date of admission to listing.
• Time limit for acquisition – The SPAC will have to set a time limit on a SPAC’s operating period if no acquisition is completed. The time limit that the FCA is proposing is two years from admission to listing, with the option of extending by up to a further 12 months, subject to approval by its public shareholders.
• Ring-fencing – Monies raised from public markets will have to be ring-fenced so that they are preserved either to fund an acquisition or to be returned to shareholders, less any amounts specifically agreed to be used for the SPAC’s running costs.
• Shareholder approval – Shareholder approval will be required for any proposed acquisition, based on sufficient disclosure of key terms and a ‘fair and reasonable’ statement where any of the SPAC directors have a conflict of interest in relation to the target company.
• Redemption – There will have to be a redemption option, allowing investors to exit a SPAC before any acquisition is completed.
• Disclosure – Adequate disclosure will have to be given to investors at the appropriate stages in the SPAC’s lifecycle, from a SPAC’s initial listing to any final transaction that results in the SPAC completing a takeover of another business and establishing a new company.

The consultation closes on 28 May 2021. The FCA says that it will consider a separate listing category for SPACs in due course, but this will come later as part of its review of primary markets and response to Lord Hill’s Listing Review (see our blog post here).