Tuesday 27 July 2021 11:38 am | Updated: Tuesday 27 July 2021 12:08 pm

City watchdog slashes fundraising threshold to attract SPACs

Just four companies left the junior market due to financial distress over the last year

Britain’s City watchdog has slashed the minimum amount a SPAC needs to raise to list on UK markets in half, it announced today.

The Financial Conduct Authority said on Tuesday SPACs – or special purpose acquisition companies – would need to raise £100m from a float, instead of the £200m initially proposed.

SPACs operate as shell companies that use capital raised through floating on an exchange to acquire a business. Private companies are attracted to the lower costs associated with listing via a SPAC, which has prompted regulators to scrutinise the model’s integrity and potential negative effects.

Delphine Currie, partner at law firm Reed Smith, said “today’s announcement could be the moment that kick-starts SPAC listings in the UK.”

The new rules are designed to stimulate more listing activity on UK financial markets by reducing risks associated with investing in SPACs under existing FCA regulations.

As part of the changes, the FCA is pressing ahead with easing rules that suspends trading in SPACs once the vehicle identifies an acquisition target.

However, SPACs will need to implement stronger investor protections to benefit from the lighter touch regulatory regime.

Alongside offering a redemption option allowing investors to redeem their stake prior to an acquisition completing, SPACs will also need to ensure money raised from a float is ring-fenced.

“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” the FCA said.

SPACs will have to gain approval from shareholders on a proposed acquisition and wind down after a certain period of time if no purchase is completed.

Currie added “the FCA appears to have struck the right balance between protecting investors and making the London Stock Exchange more competitive by removing the automatic suspension for SPACs when they announce their de-SPAC transaction.”