With investors looking for quicker and more efficient routes to going public, special purpose acquisition companies (SpAcs) have quickly taken off, while requiring far less paperwork of a traditional initial public offering (IPO). They have been especially attractive to private companies that might not necessarily meet the eligibility requirements for a traditional IPO or corporate acquisition. The faster timelines, reduced pricing risk, and the opportunity to work with experienced management teams also make then a viable exit option.
Last year, SpAcs raised over $75 billion, nearly twice the amount they did over the past decade combined; and more recently, accounted for 17% of global deal value in Q1 2021. Yet, the bulk of activity has largely taken place in the US. Despite highly skilled talent and a strong entrepreneurial spirit, the EMEA region has struggled to make investment capital accessible.
Recent figures put this into perspective. The 2021 UK Listing Review shows that only four SPACs were listed in the UK in 2020, raising an aggregate total of £0.03 billion. The Review further indicates that without SpAcs, ‘the UK is losing out on home-grown and strategically significant companies coming to market in London’. At the beginning of the year, the ex-LSF chief Xavier Rolet called for London to lead a SpAc revolution, backed by creative regulative reforms.
In a bid to make the UK a competitive marketplace for SpAc listings, the FCA released on 27 July, a host of new rules and regulations to promote better due diligence. This includes SpAcs being automatically suspended once they find an acquisition target, but only if investors are offered adequate protections.
At the same time, the FCA has also made SpAcs a more attractive and accessible option, by lowering the minimum amount SpAcs would need to raise at initial listing from £200 million to £100 million. The reforms are due to come into force on 10 August.
The response to the FCA reforms has been mixed. Some view it as a positive step in the right direction, while others still question whether these reforms will put the UK on an equal footing with competitor markets, such as the US. There is also a broader discussion to be had about SpAcs as an investment class.
The International Organisation of Securities Commissions is keeping a watchful eye on SpAcs, offering a forum for different regulators to share their experiences for non-traditional IPOs. The aim is to ensure this alternative form of funding can provide suitable opportunities for investors while also providing adequate protections.
Strong public markets are a vital component of the UK economy, and SpAcs have certainly made their mark, particularly in the fintech space. Still, it remains to be seen how the FCA rule changes will impact future market activity. As with any investment vehicle, the performance of SpAcs will invariably be driven in part by macro-economic factors beyond the control of sponsors and their newly formed companies.
This initial raft of reforms is unlikely to usher in a SpAc revolution. Instead, the FCA has elected to take a measured approach that encourages, within reason, SpAc activity. The true impact of these reforms will be revealed in the coming months.