In April 2021 the UK Financial Conduct Authority (FCA) published a consultation paper containing its proposals to amend the listing rules of the London Stock Exchange (Listing Rules) relating to special purpose acquisition companies (SPAC). A SPAC is a shell company that raises cash through an initial public offering of its shares and lists, with the aim of using the funds raised to buy one or more companies later on.
Historically one of the main stumbling blocks to sponsors seeking a listing for their SPAC on the London Stock Exchange was that the FCA would suspend the listing of the shares in the SPAC once a potential acquisition was identified on the basis that the suspension would prevent the creation of disorderly markets arising from a lack of information being publicly available. This automatic suspension was seen by investors as undesirable as they would not be able to sell their shares for undetermined periods. The presumption of suspension was undoubtedly a key deterring factor for SPAC sponsors when contemplating a London Stock Exchange listing especially when compared with the approach on other leading stock exchanges such as Nasdaq and the NYSE which allow trading to continue on throughout the de-SPAC process.
CHANGES TO LISTING RULES
Following extensive feedback from key industry players the FCA published its findings in a policy statement on 27th July 2021 and the corresponding changes to the Listing Rules came into effect on 10th August 2021. The key change to the Listing Rules is that the presumption of suspension of the listing of the SPAC shares has been removed so long as the SPAC can satisfy the following criteria:
Size threshold: a SPAC must raise at least £100m from its public shareholders at the time of listing. Any amounts raised from SPAC's sponsors, founders or directors will not be included in the £100m calculation. It is interesting to note that the FCA's original proposal in the consultation paper was to set this amount at £200m.
Fund raising proceeds to be ring fenced: any proceeds raised from public shareholders must be ring fenced, via a third party, and can only be used for:
- an acquisition;
- a redemption of shares; or
- a repayment of capital to public shareholders upon a winding up of the SPAC or if the SPAC fails to make an acquisition within the required time period (see below).
Shelf life of SPAC: a SPAC must complete an acquisition within two years of obtaining a listing. This can be extended to three years with shareholder approval. This two year or three year period (as applicable) can be extended by six months without shareholder approval if a proposed acquisition is 'well advanced'.
Approval of an acquisition: the constitutional documents of a SPAC must provide for approval of any acquisition by the board (excluding any interested director) and its public shareholders (i.e. excluding shareholders who directors, founders or sponsors of the SPAC).
Redemption rights: shareholders of the SPAC must have the right to redeem their shares at a predetermined price that can be exercised at their discretion prior to the completion of an acquisition irrespective of whether that shareholder voted for or against the acquisition.
Disclosures: disclosures on the key terms and risks will have to be given to shareholders at the appropriate stages in the SPAC's lifecycle including the SPAC's IPO prospectus and any announcement of acquisition. In addition, the constitutional documents of the SPAC must provide where any of director of the SPAC has a conflict of interest in relation to the target or the target group that it will publish a statement that the proposed acquisition is fair and reasonable as far as the public shareholders of the SPAC are concerned and that the directors of the SPAC have been so advised by an appropriately qualified and independent adviser.
WHY JERSEY? WHY APPLEBY?
Jersey incorporated companies have long been a popular vehicle for clients seeking listings on the London Stock Exchange and as at 30 June 2021 Jersey has registered the greatest number of FTSE 100 and AIM companies outside of the UK1.
Our corporate team in Jersey has a track record of advising clients on IPOs, de-SPAC transactions and all aspects of corporate governance for public companies as well as having a market leading public M&A offering. Together with our affiliated corporate service provider Appleby Global Services our team in Jersey can provide clients with a full range of legal and fiduciary services in connection with any SPAC listing on the London Stock Exchange, any subsequent de-SPAC transaction as well as general legal and fiduciary support throughout the lifecycle of a Jersey SPAC.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.