The easing of SPAC rules come as Britain fears losing out to Wall Street or European Union
Britain has decided to ease the rules for so-called Special Purpose Acquisition Companies (SPACs) to attract more listings to London Stock Exchange, which will come into force from August 10, 2021.
A SPAC is a company with no commercial operations that is formed strictly to raise capital through an initial public offering (IPO) for the purpose of acquiring an existing company. Also known as “blank check companies”, SPACs have been around for decades.
The easing of rules come as Britain fears losing out SPCAs to Wall Street or European Union (E.U.). A lot of companies, post Brexit, have shifted their base from Britain to the E.U.
Under previous rules, shares in SPACs were suspended when a target company was identified, effectively trapping investors and putting them off participating in the British market. The Financial Conduct Authority (FCA) in April 2021 proposed waiving the suspension rule if a SPAC raised at least £ 200 million (U.S. $ 275.66 million) from its float. Now, in its latest guidelines, this has further been reduced to £100 million pounds.
Apart from this, the other major changes include introduction of an option to extend the proposed 2-year time-limited operating period (or 3-year period if shareholders have approved a 12-month extension) by 6 months, without the need to get shareholder approval. These additional 6 months will only be available in limited circumstances. This is intended to provide more time for a SPAC to conclude a deal where a transaction is well advanced.
The FCA has also proposed to modify its supervisory approach to provide more comfort prior to admission to listing that an issuer is within the guidance which disapplies the presumption of suspension.
A Statement from FCA read, “The final rules aim to provide more flexibility to larger SPACs, provided they embed certain features that promote investor protection and the smooth operation of our markets.”
Announcing the new rules on twitter, FCA tweeted,
We publish final rules to strengthen investor protections in SPACs https://t.co/5S3hYC7r7I
— Financial Conduct Authority (@TheFCA) July 27, 2021
Besides, the International Organization of Securities Commissions (IOSCO), which includes national regulators like the FCA and the U.S. Securities and Exchange Commission, has created a group to monitor SPACs.
IOSCO said in a statement, “While SPACs may offer alternative sources of funding and provide opportunities for investors, they may also raise regulatory concerns.”
Apart from this, the E.U.’s European Securities and Markets Authority has set out detailed guidance on what SPACs should tell investors about risks, business strategy and criteria for selecting target companies. The U.S. has also recently ramped up an inquiry into blank check acquisitions, homing in on potential conflicts of interest created when banks act as underwriters and advisers on the same deal.
Several other private equity firms and corporates are also considering SPAC listings in London and elsewhere in Europe. Around 30-40 SPACs are expected to launch in the second half of the year. Of this 15 would be in London and rest in Europe.
