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New UK SPAC rules: too late or the start of a new cash shell party in London?


New SPAC rules come into force in the UK today, reforms initiated by the FCA to the existing UK cash shell listing rules intended to make the London market more competitive in this respect.

This could mark a new beginning for the UK’s IPO market. Under the new rules and in addition to other reforms, SPACs, must now raise a minimum of £100 million at IPO, which is half the previous £200 million threshold.

Brokers, bankers, MPs, fund managers, investors and other have been lobbying hard behind the scenes as they have watched the successful launch of SPAC after SPAC on Wall Street, and have fretted about restrictive rules in the UK which has prohibited the London market from benefiting.

“These changes are meant to enhance the attractiveness of the UK as a listing venue for larger SPACs while attempting to protect the reputation of the markets and investors,” explained Merlin Piscitelli, the Chief Revenue Officer (EMEA) at Datasite. “Still, there are concerns that the reforms are coming at an inopportune time or potentially too late, with global SPAC activity cooling down compared to the initial hive of activity at the beginning of the year.”

Ultimately, the coming months will demonstrate whether these new rules will effectively entice a new wave of SPAC investment activity in the UK and whether SPACs will emerge as the dominant force in the M&A space. If not, it might be less of a reflection of the regime’s effectiveness and more to do with a global SPAC cool off.

SPACs raised over $75 billion last year

As background, SPACs raised over $75 billion last year, nearly twice the amount they did over the past decade combined, and more recently, accounted for 17% of global deal value in Q1 2021.

Yet, the bulk of activity has largely taken place in the US. Statistics from S&P Global Market Intelligence now show that SPAC activity has slowed down significantly in Q2 2021, dropping 81% from the previous quarter. At the same time, M&A deals are continuing their bullish run with high profile deals and more significant transactions on the horizon.

The UK market has been left in a situation where there are relatively few free clean cash shells available that are already listed and free to make acquisitions. We have been some reverse takeovers taking place over the course of the last 12 months using existing companies, but many of these come with issues attached like unresolved lawsuits, debt, incumbent directors who do not want to resign, and other problems.

What do the FCA SPAC reforms look like?

The FCA had proposed waiving the rules which require a cash shell to suspend trading once a target company has been identified, but this only applied to cash shells with over GBP 200m or more. Last week the regulator cut that figure to GBP 100m.

This still means that smaller, more specialised SPACS, will have to operate under the old rules and suspend trading ahead of acquisitions.

The regulator has argued that the final rules are intended to provide larger SPACs with more flexibility, providing that they embed certain investor protection features. This includes redemption rights for investors once an acquisition is announced.

Investors had previously been critical of rules which could lead to them being stuck once a SPAC was suspended from trading. The EU’s European Securities and Markets Authority has also just set out detailed guidance on what SPACs within its remit should be telling investors about risks.

According to Reuters, bankers in the UK still feel that the reforms could pave the way for more SPAC listings of size, hitting the market this year. Some 30-40 possible cash shells could be listed with as many as 15 heading for London.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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