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Special Purpose Acquisition Companies (SPACs) have been popular in the US for decades, due to their supposed advantages over a traditional IPO. Benefits include reduced shareholder dilution, fewer regulatory demands, and higher valuations. 2020 was a spectacular year for SPACs in the US, making up of IPOs on the Nasdaq, with their success continuing into 2021. However, this success is yet to reach the London and Euronext exchanges, as investors remain sceptical.

Efforts by the UK Government to make London a more attractive listing location culminated in changes to the Listing Rules relating to SPACs, in an attempt to align the treatment of SPACs more closely with the regulatory framework for listing SPACs in the US markets (see Practice Note: (a subscription to Lexis®PSL Corporate is required)). The amendments, which provide that trading in a SPAC’s shares will not be suspended on announcement of acquisition provided certain investor protection provisions are put in place including, a minimum gross cash fundraise at IPO of £100m (lower than the initially proposed £200m), came into force on 10 August 2021.

While the UK looks to emulate the US approach to SPACs, the Securities and Exchange Commission on 30 March that it is proposing new rules and amendments to enhance disclosure and investor protection in US SPAC IPOs. The US ‘blank cheque’ model has been criticised by some investors for its focus on substantial returns for sponsors, rather than returns for ordinary shareholders. Should the be adopted, it is hoped that investors would have a better idea of how much of their investment will be used towards fees and other costs associated with any acquisition. SPAC sponsors would also have to disclose in a clearer format any financial conflicts of interest, and how investors could see the dilution of their stake in the merger process. Most US SPACs provide little insight into the industry or companies they seek to merge with, which can leave investors without sufficient information, which is in part what the SEC hopes to address. The level of disclosure required at the time of a SPAC IPO is limited as the SPAC often has no assets prior to floating and is yet to begin business operations. In addition, SPACs listing in the US would be required to supply more realistic projections, like those produced by companies who float via the traditional IPO process.  According to at UC Berkeley and SUNY Buffalo, US SPACs are consistently over-optimistic with their projected revenue growth. This in turn attracts investors who end up faring worse on their investment.

It is unclear whether the London SPAC regime will be deemed more appealing following the SEC’s proposed changes. At the time of writing, 2022 has seen SPACs admitted to trading on the London Stock Exchange, and of those six, three are seeking acquisition targets in the clean energy sector and/or European energy transition sector. The three energy-focused SPACs (, and ) are likely hoping to replicate the success of US SPACs in renewable energy sector. provided by Vinson & Elkins show that in 2021 56 US SPACs successfully merged with targets in the energy transition industry. In contrast, in 2021 the UK had only SPACs seeking targets operating in the energy transition sector. Companies working in the renewable energy sector are more likely to have taken environmental considerations into account, making them increasingly popular with investors and a more attractive target for SPACs. In a 2021 by PwC, 79% of investors now consider how a company manages ESG risks and opportunities when deciding whether to invest.

 Nonetheless, SPACs who list in London are not necessarily seeking to completely replicate the US model. More Acquisitions plc garnered headlines by seeking to distance itself from US SPACs by it was pursuing a ‘new type of SPAC’. In its , More announced it would provide only one type of share and price (the IPO price), no advisory fees, and no ongoing director salaries.  Usually, SPACs utilise two classes of share (investor shares and founder shares), which possess different rights.  By only having one type of share, More all stakeholder interests will be aligned, and that the company’s listing is a significant step for the development of the market for UK-listed SPACs. Whether what More deems a new type of SPAC will gain popularity remains to be seen.

Market Tracker will continue to monitor SPAC transactions as they develop. For further data about SPAC transactions, see our (a subscription to Lexis®PSL Corporate is required). More information on SPACs and IPO transactions will be available in our upcoming Trend Report: Trends in UK Equity Capital Markets 2021-2022, and our Q1 2022 IPO update.