Analysis

FCA trying to ensure UK joins in the SPAC boom ?

, Lexology

Following swiftly on from the Lord Hill Review’s recommendations , the UK Financial Conduct Authority (the FCA) issued a statement last week indicating that it will be opening a consultation to consider the structural features and enhanced disclosure required to provide appropriate investor protection in SPACs. The consultation is set to consider the necessary changes to the UK Listing Rules to create an attractive market environment for these vehicles and their investors, including a change to the minimum capitalization and redemption options for investors. With the incorporation of these protections, the FCA has indicated that the existing presumption of suspension of the listing for such companies at the point of an announcement of an acquisition or merger target, which is considered to be one of the main barriers to SPACs listing in London, would no longer be required.

One of the main reasons why the UK regime is currently considered less attractive for SPAC listings is the presumption that trading in a SPAC’s shares should be suspended upon announcing a potential acquisition or merger target. This has two key consequences: (1) one of the key benefits for an operating company to be acquired by or merge with a SPAC, namely, a less burdensome listing process, is lost because the suspension essentially means that the operating company still needs to prepare a full listing prospectus and deal with the prospectus rule restrictions in relation to providing forward-looking statements; and (2) the SPAC investors are locked in and cannot trade out, whether or not they approve of the proposed deal.

The combined result of these issues is that nascent companies that may be looking for a SPAC acquisition or merger, which are traditionally the most common targets for SPAC deals, are still faced with dealing with the traditional hurdles of producing a full prospectus and meeting free-float requirements among other requirements, while the investors backing the SPAC have little protection from being dragged into a bad deal.

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