The FCA is to consult on stronger rules on special purpose acquisition companies (SPACs), an increasingly popular takeover vehicle.
SPACS, popular in the US, are used pre-funded shell or ‘blank cheque’ takeover vehicles to acquire other firms.
Greater use of SPACS could see them used to acquire Financial Planning and wealth management firms, currently at the centre of takeover activity.
A number of financial firms in the UK, including Goldman Sachs, are building SPACs teams.
The FCA currently estimates there are 33 SPACs listed in the UK and 40% (13) have their listing currently suspended (often done while acquisitions are under way). Of the estimated 20 SPACs with live listings, 2 are over £100m in market capitalisation while two thirds are worth around £5m or less.
In its new consultation document CP21/10, the FCA proposes amending its rules to allow more use of SPACS but tighter regulation. Firms would need to demonstrate they have adopted the higher levels of investor protection developed “in certain overseas jurisdictions.”
Currently a SPAC listing in the UK is typically suspended at the point it identifies an acquisition target.
Suspension seeks to preserve market integrity during a period when limited information on a prospective deal could result in disorderly trading in a SPAC’s shares. However, suspension results in investors being locked into a SPAC at the point a target is announced, potentially for many months prior to completion, which is undesirable for investors and issuers, says the FCA.
The FCA proposes that SPACs that comply with higher levels of investor protection should not be subject to this restriction.
Clare Cole, director of market oversight at the FCA, said: “on the proposals: “We are consulting on a set of clear conditions based on which we will not look to suspend the listing of a SPAC.
“These changes should encourage issuers that are willing to provide transparency and strong protections to investors. This should support market confidence and aligns our approach more closely with standards in other international markets.”
In order to avoid suspension the FCA proposes that a minimum amount of £200m should be raised when a SPAC’s shares are initially listed, to encourage a high level of institutional investor participation. Investor money would also need to be ring-fenced only for acquisition or return to investors and shareholders must approve acquisitions.
There should also be a ‘redemption’ option allowing investors to exit a SPAC and a time limit for a SPAC’s operating period if no acquisition is made.