Author: Neil Vickers
Pros and cons of reversing a business into a listed shell or to IPO directly on the LSE Standard List or AIM markets
Much comment has been generated by the increase in the number and scale of US technology and other IPOs this year. Much of this has been driven by a new found interest in IPO exits by venture capital funds, in particular via reversing into special purpose acquisition companies (SPACs).
One hundred SPACs have been floated in the US this year to await acquisition targets. Perhaps inevitably we will see these trends also gather pace in the UK equity markets as investors seek exposure to high growth businesses.
What is a SPAC?
A SPAC (or cash shell or blank cheque company) is typically incorporated and listed with no existing operations, for the purpose of making one or more acquisitions in a particular sector, but with no target specified on listing. The founders (or sponsors) are typically experts in the chosen sector or geography. Entrepreneurs considering floating their business should consider the SPAC route as well as a direct IPO.
In the UK, SPACs are now most commonly listed on the Standard segment of the FCA’s Official List, but also on the LSE’s AIM market. They are not currently eligible to be FCA Premium listed (but see below).
Investing in a listed SPAC
From an investor perspective, SPACs provide a private equity type investment with the liquidity of listed stock. And venture capital backed exits via a SPAC can offer investors access to more mature businesses which are in good financial standing.
As ever, it is about the SPAC’s management team and their ability to find and execute a good deal. In contrast to the US model, however, investors in Standard listed UK shells are not typically given the opportunity to vote on the chosen target, or to demand their money back if they disagree.
Whether to seek a SPAC
Is a SPAC a backdoor way to send a growth business public, or does it instead simply complicate the IPO process for the entrepreneur? As ever, it will depend on the particular circumstances of the case, some of which factors are summarised below.
Criteria in favour of reversing into a SPAC
Reasons to IPO via a direct listing
The IPO regulatory landscape is in flux
There are other related equity market trends to keep an eye on:
We expect the US boom in SPACs to generate increased interest in their use in London, perhaps with help from our regulators, notwithstanding the differences across the Pond in the two regulatory landscapes and market characteristics.
Our IPO practice
Fladgate advises corporates, sponsors, nominated advisers and brokers on a wide range of IPOs and equity fundraisings. We help UK and overseas clients in multiple sectors, and have developed a strong track record in SPAC transactions for founders and in reverse takeovers on the Standard List and AIM.
Recent transactions include the reverse takeover of Hertsford Capital plc by marine technology group Otaq, the acquisition by technology and media platform group Entertainment AI of Blockchain Worldwide, advising the nominated adviser and brokers on the reverse takeover by brand protection company BrandShield of AIM listed Two Shields and the agreed acquisition of fund manager Oberon Investments by Baskerville Capital.