A special purpose acquisition company (SPAC) means what you probably think it does. It is a limited company or corporation with a special purpose, set up by investors and then listed on a stock exchange to encourage subscribers i.e. investors/proposers to buy shares in the company to raise capital, ultimately to buy another limited company or business.
Think of it like an acquisition or takeover where Company A has raised funds to buy out or take over Company B. A SPAC is sometimes known as a “blank cheque company” in that it raises as much capital funds as it needs (the blank cheque), to buy another firm without moving to the traditional IPO (Initial Public Offering) process to offer shares to investors via a stock exchange.
SPACs have been around for many years but have not been accessible to main stream investors due to UK regulatory and government restrictions, disclosure rules and investor protection.
The Financial Conduct Authority (FCA) has confirmed that it is consulting with the financial services industry to change listing rules and also offer investor redemption protection (if you wish to cash out). The plan is to make the UK SPAC sector more user friendly such as it is in Amsterdam and New York, where great success has been enjoyed with SPACs. In addition, UK SPACs will no longer be required to de-list i.e. remove themselves from a stock market listing when the SPAC has made its acquisition.
The market was worth £60bn in 2020 and clearly, London wants some of the ‘action’ in a post Brexit world. To cite a familiar name, Richard Branson has already set up a SPAC, listed in New York to raise $0.5bn for acquisitions.
Expect more news on SPACs after the 4 week consultation period is over then the FCA publishes its findings later this year.