Knowledge

SPACs ("Special Purpose Acquisition Vehicles") have continued to be a force to be reckoned with in the corporate world of 2021, primarily in the United States. Here, Bedell Cristin partner, Sara Johns, looks at how the Listing Rules for the London Stock Exchange and The International Stock Exchange have recently changed to put them back in the race for SPACs.

The rush to SPACs

Last year, we looked at the rapid resurgence of SPACs and their growing popularity in the offshore mainstream in this article. Since then, the rise of the SPAC has continued unabated, with SPAC Insider reporting as at 31 August 2021 that 418 SPAC IPOs have already raised over $120 billion in 2021. That's closing on double the number of SPAC IPOs in the whole of 2020 and a significant increase on the gross proceeds of $83 billion raised last year.

To date, this exponential growth in SPAC activity has been seen largely on the western side of the Atlantic where U.S. markets have embraced the SPAC as an agile and increasingly sophisticated alternative to the traditional IPO.

Now, the Listing Rules of both the London Stock Exchange (the "LSE") and The International Stock Exchange ("TISE") have been updated to attract more SPACs to British shores.

London Stock Exchange

Until very recently, London was generally regarded as an unattractive listing venue for SPACs. This was primarily due to the "presumption of suspension" applied by the UK's Financial Conduct Authority (the "FCA") which mandated that, once a SPAC had announced an acquisition target (or details of a prospective target had leaked), the SPAC's listing was suspended unless it provided detailed information about the target to the market.

Although intended to protect investors from disorderly markets, the presumption of suspension crucially resulted in illiquidity for investors during the de-SPAC process. The London Stock Exchange consequently lost out on the big SPAC rush of 2020/2021, particularly to its competitor exchanges in New York, Amsterdam and Paris which allowed trading in SPAC shares to continue as the acquisition process played itself out.

London Stock Exchange reforms

It was this key disadvantage that the FCA recently addressed in changes to the London Listing Rules. The changes, which became effective on 10 August 2021, removed the presumption of suspension for larger SPACs with structural features that embed important investor protections. In order to qualify for the removal of the presumption of suspension, a SPAC must meet the following criteria:

• Size: the SPAC must have raised at least £100 million in cash from public shareholders (as opposed to its own sponsors/founders) when it listed.
• Ring fencing: binding arrangements must be in place with an independent third party to ring fence all listing proceeds contributed by public shareholders (minus any previously disclosed operating costs of the SPAC). The use of these ring fenced funds must be restricted to:
  • funding a de-SPAC acquisition approved by the SPAC's board and its public shareholders;
  • redeeming or purchasing SPAC shares held by public shareholders; or
  • being returned to public shareholders if the SPAC is wound up or if the SPAC fails to secure an acquisition within the required timeframe.
• Timeframe for the de-SPAC: the SPAC must complete an acquisition within 2 years after its listing. This 2 year period may be extended to 3 years with public shareholder approval. An additional 6 month extension may also be permitted in certain circumstances where an acquisition, though not complete, is sufficiently far advanced.
• Board and shareholder approval of an acquisition: the SPAC's board of directors and public shareholders must have approved the acquisition.  
• Redemption or purchase of shares: the SPAC's shareholders must have the right to require the SPAC to redeem or purchase their shares at a pre-determined price before completion of an acquisition, even if they voted in favour of it.
• SPAC disclosures: the SPAC must make certain prescribed disclosures, statements and announcements in its listing and other documents. 

By implementing these changes, the FCA has put London on a more equal footing with its main competitors and has made the London Stock Exchange a more attractive proposition for SPAC sponsors and their investors.

The International Stock Exchange

TISE is recognised as a leading offshore exchange and provides a listing facility and a market for companies to raise capital from international investors based on a bespoke trading platform. Issuers are attracted to the TISE because of its competitive pricing, speed, ease of process and flexibility, and take comfort in the international standards of regulation and its wide international recognition.

In line with its progressive reputation, TISE has also recognised the need to refresh its approach to SPACs to keep pace with developing market trends. On 16 August 2021, it announced the following key changes to its SPAC listing regime – changes which have been introduced with a view, in particular, to attracting SPACs aimed at a sophisticated institutional investor base:

• Dual share classes: dual share class structures (and founder shares) are permitted, subject to certain provisions and disclosure requirements.
• Redemption or purchase of shares: issuers seeking to complete qualifying acquisitions must give shareholders the option to redeem or otherwise acquire the shares from the shareholders for a pre-determined value or price per share. 
• Shareholder approval: a SPAC issuer may not need to obtain prior shareholder approval for the completion of a qualifying acquisition, subject to certain exemption provisions. 
• Announcement: any proposed qualifying acquisition must be announced to the market within three business days.
• Removal of suspension of dealing: there is no requirement for a SPAC issuer to suspend dealings in its securities upon an announcement being made in relation to a proposed qualifying acquisition.

How we can help

Bedell Cristin's cross-jurisdictional corporate team has extensive experience advising prospective and existing offshore issuers with listings on exchanges around the world. The team also has considerable expertise in matters related to the TISE, having acted as sponsor and/or adviser to a significant number of TISE-listed clients for many years.

Please contact the author or any of our other key contacts for more information on any of the topics covered in this briefing.