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Mar 04, 2021

Change rules on Spacs and dual-class shares to attract more IPOs, advises review of UK market

London seeks to close gap with other IPO venues

The UK should relax rules around special purpose acquisition companies (Spacs), free-float requirements and dual-class shares to encourage more IPOs in London, according to a state-commissioned review.

The document sets out a series of recommendations to ease ‘burdensome’ listing rules and make the UK a more attractive place to go public, especially for ‘new economy’ companies in the tech and life sciences sectors. 

‘Looking at our relative performance and the range of feedback we have had, it is clear the current listing regime is in need of reform,’ says Jonathan Hill, who chaired the review, in a report on its findings.

The government commissioned the report last year amid worries over the competitiveness of the UK market compared with listing venues in the US, Asia and continental Europe. 

Last year, the London Stock Exchange (LSE) recorded 30 IPOs, a little over 2 percent of the global total, according to data from EY. Critics have pointed to the tough standards on the LSE’s premium segment as one of the reasons companies may head elsewhere.

London, along with the rest of Europe, has also missed out on the boom in Spac listings, which raise money then search for an acquisition target. In 2020, 248 Spac vehicles listed in the US, compared with just three in Europe. 

In a blow to London, Amsterdam is being talked about as a potential hub for further Spac IPOs in Europe, given the Dutch city’s expertise in launching blank-cheque companies and flexible listing regime. 

Despite these issues, London has enjoyed a positive start to 2021 with the major IPOs of card retailer Moonpig and boots manufacturer Dr Martens. Earlier this week, online reviews platform Trustpilot also announced it was considering a London listing.

The Hill Review recommends that the LSE allow dual-class share structures on the exchange’s premium segment, while bringing in safeguards to maintain governance standards. For example, dual-class shares would be allowed only for five years and the maximum voting ratio would be capped at 20:1. 

The review further calls for free-float requirements to be lowered from 25 percent to 15 percent. Companies should also have more ways to show they are providing sufficient liquidity.

Turning to Spacs, the report says UK listing rules should be updated because currently they may require the suspension of trading when an acquisition is announced – a key issue as investors worry they will be locked in to investments. In addition, investors in Spacs would be handed ‘additional protections’ including a shareholder vote and redemption rights when the de-Spac process takes place.

‘The Spac proposals, if adopted, would go a long way toward leveling the playing field between London and other European markets that are currently leading the race to be the venue of choice for these vehicles,’ says Jason Manketo, partner at Linklaters, in a statement.

Hill says the changes are not a radical rethink of how companies go public but rather an attempt to close a gap that has opened up between London and other markets. ‘None of our recommendations go beyond what can already be found in competing financial centers in the US, Asia or, indeed, Europe,’ he writes.

The review lists a number of other recommendations that could impact the IR profession. These include rebranding the LSE’s standard listing segment, conducting a fundamental review of the UK’s prospectus regime and exploring ways retail investors can be more involved in corporate actions.