FCA shakes up Spac rules to encourage London listings

Special-purpose acquisition companies (Spacs) aiming to list in the UK will be able to escape the suspension rule that locks investors in for months if they can raise £100m when they float.

The news was revealed by the Financial Conduct Authority (FCA), which published a set of fresh rules aiming to make the UK a more attractive place for blank-cheque companies.

In April, the watchdog suggested a threshold of £200m for the suspension rule to be lifted, excluding founder money, but City insiders had warned the figured was too high to make London competitive.

Spacs – blank-cheque vehicles that float for the sole purpose of making an acquisition – have to suspend dealing when they identify a company they want to purchase. This means backers can be trapped in their investment for several months until the acquisition is complete.

The FCA is also extending the period that Spacs have to find an acquisition target, usually two years, by six months if a transaction is well advanced without the need for shareholder approval.

The rules, which will come into effect on 10 August, include a ‘redemption’ option allowing investors to exit a Spac before it completes an acquisition, ring-fencing money raised from public shareholders and requiring shareholder approval for any proposed acquisition.

Shell companies should also provide sufficient information on the risk taken and investors should be able to exit a Spac even before an acquisition is complete, the regulator said.

It comes four months after a landmark Treasury review, carried out by former EU financial services commissioner Lord Jonathan Hill, called for a relaxation of the UK’s listing rules to capture the Spac boom in the US.

Since the start of 2020, more than 600 Spacs have listed in the US raising nearly £200bn. At the moment, there are 33 Spacs listed in London, according to latest figures released by the City watchdog, with only two exceeding a £100m market capitalisation.

London is also facing competition from a number of other markets seeking to attract lucrative listings, with several European capitals with more flexible rules already racing ahead, snatching high-profile flotations from the London Stock Exchange.

Spacs risks

But the trend has also attracted many critics, including asset manager Ruffer and top UK fund manager Terry Smith, who have dismissed Spacs as an investment folly.

‘Spacs continue to have risks and remain a more complex investment, which investors should ensure they can adequately assess and understand before investing,’ the FCA said.

‘This includes understanding their capital structure, such as the risk of conflicts of interest, dilution from shares allocated to sponsors, and assessing the potential value and return prospects of any proposed acquisition target.’

The FCA also said it will work with issuers before their listing to ensure they are ‘within the guidance’ and will not wait until the point that an announcement is to be made.

It added: ‘We have carefully considered the feedback provided, recognising the potential risks of Spacs for less sophisticated investors in particular. Although we have not made any changes at this stage, we will keep this under review and monitor how Spacs are distributed and marketed.’


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