The UK's Financial Conduct Authority is consulting interested parties about changing its listing rules for certain special-purpose acquisition companies or SPACs.
A SPAC listing is typically suspended at the point at which the SPAC spots a target for acquisition. The idea behind this is to stop incomplete information about a prospective deal from causing disorderly trading in the SPAC’s shares. When the regulator suspends the SPAC's listing, though, the investors are locked into the SPAC and this stasis might continue for many months before it has acquired it. This is undesirable for both investors and issuers. The FCA wants to ensure that "SPACs that comply with higher levels of investor protection" should not be subject to this requirement.
Which SPACs might these be? Clare Cole, the director of market oversight at the FCA, admitted recently that she wanted the new rule to benefit the "larger SPACs."
A SPAC ought to do the following to benefit.
- Set a minimum amount of £200 million to be raised when its shares are first listed, the better to attract institutional investors (this does not detract from the fact that SPACs are highly attractive to HNWs and their advisors/DFMs).
- Ensure that monies raised from public shareholders are ring-fenced to either fund an acquisition, or to be returned to shareholders, minus any amounts agreed to be used for the SPACs' running costs.
- Obtain the approval of shareholders for any proposed acquisitions. They must be well-informed about key terms and receive some sort of confirmation that those terms are fair and reasonable if any of the SPACs' directors have conflicts of interest in relation to target companies.
- Set up a ‘redemption’ option to allow investors in the SPAC to leave it before it completes any acquisition, plus a time limit on the SPAC’s operating period if it does not complete an acquisition.
- Provide adequate disclosures to investors about key terms and risks from the SPAC's initial public offering or IPO, right through to the announcement and conclusion of any reverse takeover deal.
SPAC issuers that cannot or will not do all this will still live under a presumption of suspension.
SPACs are relatively complex investment vehicles, requiring investors to understand both their capital structures and assess the potential value and return prospects of any acquisition targets that are proposed later. American SPACs have highly varied returns for public investors and can often result in losses, despite the hype that surrounds them. Comments must be in in four months' time, which is a lengthy period for a consultative exercise.