- On 27 July the FCA published a policy statement setting out the final version of changes to the UK Listing Rules applicable to Special Purpose Acquisition Companies (SPACs). The final rule changes are largely unchanged from those published in the FCA's consultation paper on 30 April. A link to the policy statement can be found here.
- The rule changes will remove the existing presumption in the Listing Rules that the listing of a SPAC will be suspended when it announces a potential acquisition, provided that the SPAC raises at least £100 million from public investors, includes certain investor protection features in its structure and discloses sufficient information to the market.
- The FCA's aim is to provide more flexibility to larger SPACs while setting robust and credible standards that it considers to be beneficial to both investors and issuers.
- The revised rules will come into force on 10 August 2021.
- We believe the majority of market participants will welcome the clarity and certainty provided by the FCA's revised rules and the proposal to provide 'up front' comfort to SPACs at the time of admission that they satisfy the criteria for dis-application of suspension.
- However, although the rule changes go some way to creating a level playing field with other major listing venues, in some areas the rules go beyond the requirements in most other jurisdictions. Most notably, the new rules prevent sponsors and 'anchor' investors who participate in a SPAC's at-risk capital from voting on the acquisition. It will be interesting to see how these differences are viewed by the market and whether they have an impact on London's position as a market for SPACs compared to competing financial centres such as such as New York and Amsterdam.
Criteria for dis-application of suspension
In order to dis-apply the presumption of suspension when announcing a potential acquisition suspension of its listing, a SPAC must confirm to the FCA that it satisfies the following criteria:
- The SPAC must raise gross proceeds from public shareholders at its initial admission of at least £100m (this is lower than the threshold of £200 million originally proposed by the FCA in its consultation).
- This amount excludes any IPO proceeds received from non-public shareholders, i.e. the SPAC's founders, directors or "sponsors". "Sponsors" is defined broadly under the new rules to include anyone providing capital or finance to support the SPAC's operating costs, financial, advisory, consultancy or legal services, facilities or support services, or any other material contribution to the establishment and operations of the SPAC.
- In effect the definition of "sponsors" will capture so-called 'anchor' investors who receive a portion of the SPAC's 'at-risk' capital (typically in the form of founder shares and founder warrants) alongside a significant order of public shares and public warrants in the IPO. Anchor investors have been a feature of many recent US and European SPACs, and it is notable that there are no similar restrictions in New York, Amsterdam or other major SPAC markets.
- The SPAC must adequately ring-fence, via an independent third party, proceeds raised from public shareholders. The ring-fencing should be structured such that the proceeds can only be used to fund:
- a duly approved acquisition;
- redemptions of shares held by public shareholders; and
- repayment of capital to shareholders if the SPAC winds up or fails to make an acquisition.
- The SPAC's constitution must provide that if the SPAC has not completed an acquisition within 24 months from admission it will cease operations and distribute its ring-fenced proceeds to public shareholders as soon as possible.
- The 24-month deadline can be extended:
- by up to 12 months subject to approval by public shareholders; and/or
- by up to a further 6 months without shareholder approval where an acquisition agreement has been entered into but not completed, provided that any such extension is announced in advance.
- The FCA has amended its original proposals to include the further 6-month extension where transactions are well advanced. As a result a SPAC could in theory have a maximum operating life of 42 months, although in practice it is uncommon to see periods beyond 24 months (with an extension of up to 6 months) in the current market.
Board and shareholder approval of an acquisition
- The SPAC's constitution must provide that an acquisition is subject to approval by both:
- the board, excluding from the discussion and vote any director who is a director of the target group (or an associate of a target group director) or has a conflict of interest in relation to the target group; and
- its shareholders, and must ensure that founders, directors and "sponsors" are prevented from voting on the acquisition.
- The requirement that founders, directors and "sponsors" (as broadly defined, and including 'anchor' investors as described above) be excluded from voting on the acquisition is a key point on which the new rules are more restrictive than those in other major SPAC markets. It remains to be seen whether this will affect the participation of anchor investors in London-listed SPACs.
Fair and reasonable statement
- The SPAC's constitution must also provide that where any of the SPAC's directors has a conflict of interest in relation to the target group, the SPAC will publish a statement that the proposed transaction is fair and reasonable as far as the public shareholders of the SPAC are concerned and that the SPAC's directors have been so advised by an appropriately qualified and independent adviser.
Shareholder redemption rights
- The SPAC must provide shareholders with a redemption right at a predetermined price (either a fixed amount or a fixed pro rata share of ring-fenced proceeds) which is exercisable:
- at the discretion of shareholders prior to completion of an acquisition; and
- regardless of whether shareholders voted for or against the acquisition.
- Where the above criteria are met and the FCA agrees that a suspension of trading is not necessary, the SPAC must release an announcement at the time of the acquisition containing:
- a description of the target business and the material terms of the proposed transaction, including the expected dilution effect on public shareholders from founder shares or new share issuance;
- an indication of how the SPAC has assessed the value of the target business, including reference to any selection and evaluation process set out in the SPAC's IPO prospectus; and
- any other details of which investors should be aware in order to make a properly informed decision.
- The FCA acknowledges that not all required information may be available at the time of the initial announcement. In this situation the SPAC must identify in its initial announcement any information that has not been included and make further announcements once such information is available in sufficient time before shareholder approval of the acquisition is sought.
- The FCA has indicated it will work with SPACs to provide comfort prior to admission as part of the initial eligibility and approval process that they satisfy the criteria described above for the dis-application of suspension.
- SPACs will be required to re-confirm at the time of announcing an acquisition that they meet the criteria.
- The FCA also expects SPACs to comply with their existing obligations under the Listing Rules and UK MAR for early engagement prior to announcing a potential reverse takeover, for cleansing the market in the event of a leak and ensuring that all material information is provided to investors, and the FCA reserves the right to impose a suspension under its general powers in the same way as it would for listed commercial companies.
We would be delighted to discuss any of these matters in more detail. Please contact your usual W&C contact for further assistance.
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