Post-Brexit London should relax SPAC rules

on Mar3
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An employee sits reflected in a glass screen featuring the London Stock Exchange Group Plc’s logo at their offices in London, U.K., on Thursday, Jan. 2, 2020.

Simon Dawson | Bloomberg via Getty Images

LONDON — London should reform its listings rules to attract blank-check firms and tech unicorns post-Brexit, a U.K. government-commissioned review said Wednesday.

Prime Minister Boris Johnson’s government is hoping to convince more fast-growing tech firms to list in London, in a bid to make the U.K.’s financial markets look attractive after the country ended EU rules on Dec. 31.

There’s long been a trend of European firms snubbing local exchanges in favor of the U.S. markets due to more favorable valuations and share structures. The U.K. government wants to change that and has released several proposals ahead of its annual budget announcement.

The U.K. listings review, led by former EU financial stability chief Lord Jonathan Hill, makes a number of key proposals aimed at bolstering London’s stock market:

  • Allowing dual class share structures to give founders more control.
  • Reducing free float requirements to avoid diluting early backers.
  • Relaxing rules around special purpose acquisition companies, or SPACs.

“The SPAC proposals, if adopted, would go a long way towards levelling the playing field between London and other European markets which are currently leading the race to be the market of choice for these vehicles,” said Jason Manketo, partner at the law firm Linklaters.

Europe as a whole has largely missed out on the SPAC phenomenon, which sees shell companies raise funds in the public markets to acquire an existing privately held firm. The listing method gained significant traction on Wall Street last year and is tempting tech businesses looking to bypass the traditional initial public offering process.

There were just three SPAC listings in Europe last year, which raised $495 million in total. That pales in comparison to the U.S., which raised a total of $78.2 billion across 244 IPOs in 2020. And U.S. SPACs have already raised more than half of what they did last year just two months into 2021.

An increasing number of SPACs are listing in New York with the intention of snapping up a European tech company. Meanwhile, European tech investor Klaus Hommels listed his own blank-check firm with a U.S.-like structure on the Frankfurt Stock Exchange.

“We asked Lord Hill to lead this review because we wanted bold ideas,” U.K. Finance Minister Rishi Sunak said in a statement late Tuesday. “The UK is one of the best places in the world to start, grow and list a business — and we’re determined to enhance this reputation now we’ve left the EU.”

Lord Hill’s review has “more than delivered,” Sunak said, adding he’s “keen we move quickly to consult on its recommendations.” Britain’s Treasury department said it would assess the review and consult with the Financial Conduct Authority — London’s markets watchdog — to set out next steps.

The findings were welcomed by London Stock Exchange boss David Schwimmer, who said: “Continuing to evolve the UK listings regime is key to providing flexibility for companies who want to list in London while maintaining high standards of corporate governance.”

Dual class share structures were pioneered by tech giants like Google and Facebook, giving founders enhanced voting rights. A move to adopt a similar system in London could encourage more homegrown unicorns — tech firms valued at more than $1 billion — like Revolut and Checkout.com to list locally.

On Monday, Danish reviews website Trustpilot said it was considering launching an IPO in London. Several other firms, including Deliveroo, Wise and Darktrace, are rumored to be exploring stock market debuts in the U.K.



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