Introduction
In the last few weeks, Fladgate’s capital markets team has advised on the Standard listing of two cash shells (or Special Purpose Acquisition Companies (SPACs)): Oneiro Energy PLC and Ashington Innovation PLC.
We are delighted for the management and investors of those companies, not least because the listing applications were completed in the final days of the "transitional period". The ability to list a company on the Official List at a market capitalisation of under £30 million expired at midnight on 2 June 2023.
Both Oneiro and Ashington are "small cash shells", compliant with the prior minimum market capitalisation (MMC) requirement of £700,000. These issuers will therefore represent a footnote in the history of the UK capital markets – Ashington Innovation being the last ever "small cash shell" – and, as a practical matter, the resulting scarcity of new cash shells following the end of the transitional period can only be supportive of Oneiro and Ashington’s prospects of securing an attractive target.
Our thoughts
Given Fladgate’s involvement in many IPO, financing and RTO transactions for cash shells over the years, we thought it would be timely to share some observations on the UK cash shell / SPAC space as it now stands:
- In late 2021, the FCA commenced a consultation on various Listing Rule changes and originally proposed a £50 million MMC. Fladgate, amongst others, had argued for a substantially lower MMC (perhaps £10-£15 million) to allow smaller companies to continue to access a Standard listing, a listing route that had been successfully used by junior issuers over many years. In a suite of Listing Rule changes in December 2021, the FCA ultimately brought in the £30 million MMC requirement.
- What does this all mean for the "small" SPAC space in the London market? Perhaps there will be a return to the listing of "investing companies" on AIM, or perhaps listings of "enterprise companies" on the AQSE Growth Market (requiring a £2 million financing and a 25% free float) will fill the gap. Our view is that there remains a strong demand amongst investors and potential IPO candidates alike to retain a pipeline of acquisition vehicles in the London market.
- At the same time, the FCA consulted on, and then introduced, an updated regime for the listing of SPACs on the Official List. Large SPACs - broadly, those securing >£100 million of independent financing - that adopted a "North American"-style SPAC structure (including redemption rights and a 24-month period to compete a transaction) could continue to trade on the market after announcing a potential acquisition. The suspension of trading which would otherwise be triggered under the Listing Rules was considered a key structural impediment to UK SPAC listings when compared to the US market, which, at the time, was extremely hot.
- The phasing out of "small" SPACs on the Official List – via the increased MMC – feels like unfortunate collateral damage arising from the December 2021 Listing Rule changes. Small Standard listed SPACs with basic corporate structures satisfied a particular niche in the capital markets ecosystem and supported many listings via RTOs which may otherwise not have completed. A Standard listing was the ideal home for such vehicles, avoiding much of the regulatory burden and cost of an AIM listing, together with its £6 million minimum financing requirement (there have been very few "investing companies" listed on AIM for these reasons). That said, the upcoming changes to the Listing Rules that are currently under consultation are likely to add to regulatory burden and cost for smaller Standard listings and reduce the arbitrage between Standard and AIM listings in this regard.
- Turning to the "large" SPAC sector, the number of new US SPAC listings has fallen off a cliff since the heyday of 2021/early 2022. The US market has seen, in a number of cases, a substantial loss of shareholder value in the post-acquisition groups, and from the target’s perspective, uncertainty of funding as a result of the redemption rights built into the SPAC structure. Promoter incentive structures are now under the spotlight and investor litigation actions are being brought. In the UK, there have been relatively few large SPAC listings since the December 2021 Listing Rule changes, perhaps in part because these US trends were starting to become apparent. In other words, the FCA’s rule changes may have come too late to allow a parallel UK SPAC boom, but given the issues now apparent in the US market, perhaps that was no bad thing.
- In this context, it is very interesting to note that the recent Standard listing of the Sir Martin Franklin vehicle, Admiral Acquisition Corp, which raised US$550 million, did not utilise the new US-style SPAC structure and offered no investor redemption feature. This is something of a throwback to the big "cash shell" listings in the UK market; indeed, the founders of Admiral Acquisition listed (by way of Standard listing) J2 Acquisition Limited, Nomad Holdings Limited, Platform Acquisition Holdings Limited and Justice Holdings Limited amongst others, all of which raised substantial funds on IPO and completed major acquisitions. It may be that the UK market will revert to "traditional" cash shells for large listings even though the US-style SPAC structure is now available under the Listing Rules.
Conclusion
In summary, as a function both of market forces and regulatory changes, the UK SPAC or cash shell space, at both the large- and small-cap end of the market, is set for significant change. However the market develops, Fladgate will continue to be active in the sector.
If you would like to discuss any of the above, please contact Paul Airley, David Robinson or Nigel Gordon in our capital markets team.
