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Jul 28, 2021

UK publishes final rules for Spacs in bid to attract listings

Changes part of wider package of measures aimed at boosting attractiveness of UK equity markets

The UK’s financial market regulator has finalized new rules for special purpose acquisition companies (Spacs) in a bid to attract more ‘blank check’ listings to London.

In April the Financial Conduct Authority (FCA) began a consultation on Spacs after a government-backed report said the UK needed to ease ‘burdensome’ listing rules.

Spacs raise money through a listing and then search for a private company to merge with. The resulting transaction takes the private business public, offering an alternative to a traditional IPO.

Under current FCA rules, trading in Spacs could be suspended when information about a target is published or leaked. That created the risk that investors could be locked into the transaction, putting off sponsors from using London to raise capital.

In its final rules, the FCA says the ‘presumption of suspension’ will be removed if the Spac offers certain investor protections.

These include giving investors the chance to exit before mergers are completed, requiring shareholder approval for transactions and including a time limit on how long Spacs can operate before they must return money to investors.

The FCA says it has taken on board feedback and adjusted its original proposals – for example, by lowering the minimum amount a Spac must raise from £200 mn ($277 mn) to £100 mn and offering a six-month extension to a Spac’s time limit if a transaction is close to completion.

The regulator will also offer guidance to Spacs to help them understand whether they are meeting the requirements to avoid a suspension.

‘The final rules aim to provide more flexibility to larger Spacs, provided they embed certain features that promote investor protection and the smooth operation of our markets,’ says the FCA in a statement.

‘Private companies listing in the UK via a Spac will also still be subject to the full rigor of the FCA’s listing rules and transparency and disclosure obligations.’

The US saw huge numbers of Spac listings during 2020 and the first quarter of 2021, before activity dropped sharply amid increased scrutiny by regulators. Europe, however, has largely missed out on the Spac boom. The region saw just three listings in 2020, compared with 248 in the US.

The changes to Spac rules are part of a wider package of measures being considered by UK regulators. In March, Lord Hill’s review into UK equity markets also proposed relaxing the rules around dual-class shares and lowering free-float requirements, among a variety of other options.