The rule changes mostly reflect those proposed in the April 2021 consultation. The key change is that the new regime will apply to SPACs which raise a minimum amount of £100 million at IPO (as opposed to a £200 million threshold proposed in the original consultation).
On 30 April 2021, the UK Financial Conduct Authority (FCA) launched a consultation on proposed changes to the UK Listing Rules for certain special purpose acquisition vehicles (SPACs) (see Morgan Lewis LawFlash of 5 May 2021), aimed at providing more flexibility to larger SPACs listing in the United Kingdom, provided they embed certain features that promote investor protection and the smooth operation of UK markets. On 27 July 2021, the FCA published Policy Statement PS21/10 (PS21/10: Investor protection measures for special purpose acquisition companies: Changes to the Listing Rules (fca.org.uk), which sets out the result of that consultation, including the resulting changes which are to be made to the Listing Rules.
The key change to the Listing Rules is the removal of the existing presumption that a SPAC’s listed shares will be suspended when it announces a potential acquisition. This presumption has long been seen as a significant disincentive to the listing of SPACs in the United Kingdom, as it removes the ability for SPAC investors to exit their investment if they are unenthusiastic about the proposed target. However, the presumption will only be removed in the case of SPACs which meet certain criteria; the presumption of suspension would continue to apply to any SPACs not meeting the qualifying criteria.
The principal qualifying criteria are summarised below:
As a result of concerns expressed in a number of responses to the consultation, the FCA has indicated that it intends to work with issuers and their advisers to ensure that, as part of the process of vetting the prospectus and assessing a SPAC for eligibility for listing, comfort will be given to the SPAC that the qualifying criteria are met and that, provided that continues to be the case, any subsequent acquisition would not be subject to the presumption of suspension. However, SPACs will be under an obligation to notify the FCA if the criteria are no longer met, and required to contact the FCA prior to any acquisition announcement to confirm that the SPAC continues to meet the qualifying criteria. If the criteria are no longer met, the presumption of suspension will apply. The FCA also noted that, if there is a leak prior to the announcement of an acquisition, there may still be a requirement to suspend trading, as would be the case in relation to any other commercial company.
The FCA also included in the April 2021 consultation a general enquiry as to whether it should include further measures or a different approach to ensure adequate protection for investors in SPACs (for example, by imposing restrictions on the marketing of SPACs to retail investors). In the Policy Statement, the FCA concluded that it would be disproportionate to restrict retail access to SPACs at this stage, but specifically noted that it recognises the potential risks of SPACs for less sophisticated investors in particular, and that it will keep the potential need for further or different protections under review, and monitor how SPACs are distributed and marketed.
The changes will come into effect on August 10, 2021.
As noted in our May 5 LawFlash, historically there have been relatively few SPACs or other forms of cash shell listed on the UK markets, with most of those raising relatively small amounts (less than £10 million). The changes to the UK rules are clearly intended to make the United Kingdom a more attractive listing venue for larger SPACs and SPAC investors, while seeking to protect the reputation of the UK markets. However, given the perception that the SPAC market in the US may have begun to cool, a key question is whether the rule changes may come too late for the current SPAC wave, or just in time for a rollover of investor appetite into the UK market.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact the following Morgan Lewis lawyer: