A SPAC-tacular Change in UK Listing Rules

A SPAC-tacular Change in UK Listing Rules​

The Story

Following a government-backed review of the UK listing rules, UK Finance Minister Rishi Sunak has announced Britain will modernise its listing rules to attract new, fast-growing companies (Finimize; Reuters). Two changes are proposed:

First, adjusting dual class share structures to allow founders greater control of their businesses. The minimum ‘free float’ (a company’s outstanding shares owned by public investors) would be reduced from 25% to 15% (Reuters). This means founders don’t have to sell as many shares to list. It should also help “empower retail investors” by encouraging them to participate in capital raises (Financial Times).

Second, liberalising rules around SPACs (special-purpose acquisition companies). These are “publicly traded shell companies created for one purpose” - to identify a private company and purchase it (New York Times). A SPAC lists on a stock exchange to raise money from investors (sponsors) before merging with the acquisition target. They are also referred to as ‘blank cheque’ companies. SPACs are controversial. Nonetheless, transactions involving SPACs reached $109 billion globally last month and, in September 2020, “represented more than 40% of 2020’s IPOs” (Finimize; Financial Times). Therefore, a rethinking of the company prospectus (a document providing details about a company to investors), removing regulation and encouraging capital raising, has been recommended.

London has arguably lost its attractiveness as a listing location in recent years. These changes represent an effort to rebrand the City as the place for fast-growing companies. With “London-based listings only accounting for around 5% of all global stock market debuts between 2015 and 2020”, the City is struggling to remain competitive (Finimize). Brexit has exacerbated this. Recently, Amsterdam has ousted London as Europe’s top share-trading centre, as shares in London “fell sharply to €8.6bn” (Financial Times).

What It Means For Businesses And Law Firms

Lord Hill, responsible for carrying out the review, stated that these proposals aim to “encourage investment in UK businesses [and] support the development of innovative growth sectors such as tech and life sciences” (Financial Times). With increasing competition from rivals, the UK has recognised that a “digital big bang” and fintech growth is needed (Financial Times). The proposed rules by Lord Hill should address these concerns and attract new start-ups.

Although there are concerns that deregulation may lead to risks of declining corporate governance standards, Hill noted these recommendations “are not about opening a gap between us and other global centres by proposing radical new departures [...] they are about closing a gap which has already opened up” (Reuters). Ultimately, these proposals aim to remove the perception that companies listed in London are “representative of the ‘old economy’ [rather] than the companies of the future” (Financial Times).

With relaxed listing rules, increased IPOs, particularly SPACs, should start popping up in London. Law firms may be involved in drafting IPO documentation (such as the prospectus), dealing with intermediaries, and ensuring compliance for numerous rules. Rigorous investigation into companies, or due diligence, will require the help of lawyers. Law firms may also assist companies in securing the necessary regulatory approvals and documentation within a limited period of time.