In the UK, the regulatory regime relevant to SPACs recently changed. New listing rules, consulted on in the spring, came into effect on 10 August after a review, by Lord Hill, had identified recommendations designed to modernise the UK markets and attract a greater number of high-growth companies to list in London.
Alasdair Weir of Pinsent Masons said: “The difficulty for listing SPACs in London had been the presumption in the listing rules that insufficient information, particularly financial information, would be publicly available about the target company to allow the SPAC’s shares to continue trading throughout the acquisition process. Therefore, as soon as a potential acquisition was announced, a SPAC’s shares would ordinarily be suspended from trading, locking in the SPAC investors for weeks or months until the acquisition was completed, or terminated.”
“Reforms which came into force in August 2021 set out circumstances in which the Financial Conduct Authority will now be satisfied that the SPAC has sufficient measures in place to protect investors and so that the smooth operation of the market is not temporarily jeopardised, and a suspension is not required,” he said.
Lisa Early, also of Pinsent Masons, said that Ireland has the potential to attract SPACs in future if policymakers there pursue regulatory reforms. She pointed to the fact that Ireland is already an attractive jurisdiction for technology companies and US investment.
She said: “Historically Ireland has proved a popular choice for investment and acquisition by US investors and companies and it’s likely that, even if not listed in Ireland itself, US and UK SPACS may look to deploy capital raised in making acquisitions in Ireland and thereby increasing M&A activity in Ireland. A number of Irish entrepreneurs have been involved in US SPACs and have shown an appetite to continue to raise capital in this way. Additionally, there continues to be a very strong pipeline of Irish tech businesses ripe for investment, so it continues to be attractive for investment.”
“Ireland often follows the UK’s lead in terms of regulation, and it will be interesting to see the changes made to the regulatory framework in Ireland following the UK’s own review and changes,” Early said.
Sergio Redondo and Rocío García said that US interest in Irish tech business in comparison to other European markets could be based on the tax benefits, given Ireland’s historic lower corporate tax rate of 12.5 %. Historically, tech business in Ireland has been a long-established sector.
While SPACs offer European technology companies a faster way to raise finance on public markets than through their own IPO, there are risks to such arrangements.
Redondo and García added: “SPACs are highly dilutive in comparison with traditional IPOs. The SPAC’s dilution is unknown until the time of the merger, when shareholders decide whether to exercise their rights to redeem their shares. The Spanish Economy Ministry is looking to control the effect of share dilution in order to prevent investors who participate in the company after its incorporation from suffering unforeseen outcomes. The protection of investors must be based on the requirement for detailed information on the different situations that can occur, with dilution of their position being one of the most critical.”
Redondo and García also said that because SPACs are “highly speculative” this can impact directly on companies’ valuations and the resultant expectations of investors.