THE UK SPAC REFORM: EXPLORATION OF ITS EXECUTION

Special Purpose Acquisition Companies (SPACs) are known to have found fresh existence some years before. SPACs are cash-shell corporations with no particular processes fixed with a specific aim: to handle a business amalgamation or reverse merger with a purpose. First, the wealth is upturned through an initial public offering (IPO) of stocks and warrants (or unit securities collected together). Then the SPAC utilizes the profits to supply one or more mergers that form the foundation of the continuing public entity. SPAC seized the IPO market in 2020, lifting a spectacular $83 billion in capital. The force passed over to 2021, with $115.6 billion upturned through more than 400 SPACs in 2021, mainly on Wall Street, where SPACs create two-thirds of total IPOs.

Since April – May 2021, SPAC contributions in the US have considerably decelerated as governing and valuation worries have amplified. This is not astounding since the feelings on SPACs usually tend to be excessive. On the pro-side: SPACs are quicker and deliver new certainty when the target is recognized since the public venture has already been made. On the other hand, those who participate in the SPAC initially have less assurance on the characteristics of the eventual target. Furthermore, the sponsor and associates are usually allotted shares and warrants in the SPAC for a nominal consideration, in acknowledgement of their labours at recognizing appropriate targets, but this may suggestively weaken other stockholders of the SPAC.

For those explanations, the international financial regulation of SPACs is mounting, and it inclines gradually to be more attentive to retail public depositors. This demonstrates a novel political aspect of SPACs in deciding the consequence of upcoming outflows and influxes of funds among nations. Additionally, it confers growth to competition amongst national regulatory frameworks to guarantee that the allure of capital inflows connects with the best SPAC-friendly legal system. The UK intends to situate itself as the novel headquarters for European SPACs.

1. The Hill Report and the UK SPAC Reform: The Background

In March 2021, Lord Jonathan Hill's assessment of the UK's listing regime suggested a sequence of alterations to create the UK a gorgeous location for initial public offerings (IPOs) post-Brexit. In the existing UK legal system, there is an assumption that a SPAC has to interrupt the transaction of shares once a target is proclaimed for reverse takeover instructions. Therefore, shareholders are sealed in, even if they do not support a potential acquisition – not proposing investors security. The Hill Report requested the elimination of this assumption. It presented fresh precautions, such as the right of SPAC stockholders to choose on the acquisition and the right to buy back their opening investment before finishing the corporate amalgamation.

Additionally, the Hill Report recommended the institution of dual-class stock arrangements even for premium listings. These consent SPAC creators to preserve power through securities that move more than one vote. This application has been taken onward by the Financial Conduct Authority (FCA) distinctly from the SPAC developments. On 30 April 2021, the FCA issued a consultation paper (CP21/10) and a policy statement (PS21/10) on 27 July 2021, setting the concluding edition of variations to the UK Listing Rules relevant to SPACs. The reviewed modifications came into force on 10 August 2021.

2. The UK SPAC Reform: Analysis

The FCA has, typically, taken a flexible method to SPACs, though policy announcements are vigilant and highlight the difficulty of SPAC arrangements. Larger SPACs are preferred, and this shows the necessity for the sponsor's sincerity. The UK has detached itself from the current recognized international financial agendas of SPACs, principally concerning the voting rights of the sponsor stockholders and anchor depositors.

In terms of disclosures, the FCA locus is likeness to the new European Securities and Markets Authority (ESMA) public statement circulated on 15 July 2021. The FCA is looking to encourage uniform prospectus release and guard investors in SPACs. This can also be described as SPAC's sponsors will notify investors of upcoming situations (such as likely dilution, post-acquisition authority and disclosure of the sponsor's reimbursement scheme; future finance needs either in the PIPE procedure or convertible bonds). Still, this data cannot be recognized during the period of the IPO. Therefore, the FCA and European officials should take a hard-headed tactic and admit that pre-IPO releases are conceivably descriptive rather than conclusive. Most of those structures are discussed at the corporate amalgamation, and potency varies from those firstly projected in the prospectus.

The new rubrics in the UK stop sponsors and anchor depositors who contribute to a SPAC's at-risk investment from voting on the acquisition. This is a substantial alteration from other listing locations, and we trust it may influence London's capability to participate in the SPAC arcade. But, undeniably, this is not mandatory by other Exchanges such as NASDAQ, Euronext and NYSE.

Separately from these possible difficulties, the general SPAC reform in the UK appears to be steady with the global trend of ensuring more public investors' shields in SPAC transactions, and it epitomizes the first coordinated system on SPACs in Europe. However, whether the UK is expected to come to be the succeeding 'SPAC-hub' in Europe is contingent on whether the FCA will have an amenable attitude and market-oriented attention in exploratory and appreciative SPAC prospectuses and corporate amalgamations.

References

Oxford Law Faculty. (2021). The UK SPAC Reform: Preliminary Remarks. [online] Available at: https://www.law.ox.ac.uk/business-law-blog/blog/2021/09/uk-spac-reform-preliminary-remarks [Accessed 27 Oct. 2021].

Stafford, P., Parker, G. and Thomas, D. (2021). UK markets regulator unveils plan to reform Spac rules. Financial Times. [online] 31 Mar. Available at: https://www.ft.com/content/1224cfc3-c431-415e-9216-6cb3ab8f78d5 [Accessed 27 Oct. 2021].

Bird & Bird. (n.d.). UK Listing Reform: The launch of the “UK SPAC” and wider listing regime consultations continue. [online] Available at: https://www.twobirds.com/en/news/articles/2021/uk/uk-listing-reform-the-launch-of-the-uk-spac-and-wider-listing-regime-consultations-continue [Accessed 27 Oct. 2021].

CityAM. (2021). Will the FCA’s reform agenda set off a SpAc revolution? [online] Available at: https://www.cityam.com/will-the-fcas-reform-agenda-set-off-a-spac-revolution/ [Accessed 27 Oct. 2021].