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The UK shouldn’t chase Spacs

By Aidan Gregory
06 May 2021

The Financial Conduct Authority’s plan to look at helping US-style special purpose acquisition companies list in London smacks of short-termism. Even in the US, the epicentre of the Spac craze, there is a growing clamour for the Securities and Exchange Commission to toughen listing rules.

More than $100bn has been raised by Spacs globally this year, overwhelmingly in the US, aided by endorsements from celebrities such as Jennifer Lopez and Shaquille O’Neal.

The City’s regulator is keen to attract more listings to London following Brexit. But UK law makes US-style Spacs unworkable. A key feature of Spacs is that investors can redeem their holdings when a Spac strikes a deal with a target company in the US. UK law prevents this, as trading in the entity must be suspended at that point.

So the UK has missed the Spac boat, but that’s no bad thing. Spac issuance slowed in April and a regulatory crackdown is looming in the US, as the SEC is under pressure to strengthen Spac disclosure requirements.

These are opaque structures that many fear are ripe for fraud. This concern is fuelled by cases such as Akazoo. The music streamer was sued for fraud by the SEC after it was accused of misleading investors during its merger with a Nasdaq-listed Spac.

The performance of Spacs overall has been poor too. The Defiance Next Gen SPAC Derived ETF, which tracks the asset class, is down 30% from its February peak.

Thankfully, regulatory change is slow — often rightly so. Good rules require thought, scrutiny and planning.

If the UK alters its rules, it must be done thoroughly. Whether any new rules turn out to be good or bad, developing them will, at the least, give this feverish fad a chance to chill out before the UK lets it infect its reputation as a top-tier equity capital market.

By Aidan Gregory
06 May 2021