The trend in the US for high-growth companies to list via SPAC mergers has even听swept up some the UK鈥檚 top brands.听
A faster way of listing a company, it involves the creation of a听publicly traded听blank cheque company听鈥撎齥nown as a SPAC, or听special purpose acquisition company听鈥撎齝reated specifically for the purpose of the deal.听
UK-based听Super Group, parent company of online gaming firm听Betway,听recently agreed a SPAC listing in New York听which values the business at $4.75 billion听as it plans to expand in the US.听
And in Q3, UK-based online car retailer听Cazoo听plans to go public in the US via a merger with a blank cheque company led by billionaire investor Dan听Och听which will see it valued at $7bn.听
鈥淔ollowing Brexit, the UK needs to reform its listing rules as a whole to attract听special听purpose听acquisition听companies听and tech unicorns鈥�,听explains听Maxim听Manturov, Head of Investment Research at Freedom Finance Europe.听听
鈥泪t is essential that听the听Prime Minister听[Boris Johnson]听convinces more fast-growing tech companies to list in the London Stock Exchange to make the UK financial markets more attractive.听听
鈥�EU companies have been long tending to prefer the US exchanges over the domestic ones due to more听favourable valuation and stock structure.鈥�听
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The slowdown in London listings听has led to concerns over the attractiveness of the London Stock Exchange markets for companies looking to go public.听
Indeed,听when food delivery disrupter Deliveroo revealed its intention to IPO in London,听Chancellor Rishi Sunak听rushed to听hail听the firm听a听‘British tech success’, adding last month:听“We are looking at reforms to encourage even more high growth, dynamic businesses to list in the UK.听
“So听it’s fantastic that Deliveroo has taken this decision to list on the London Stock Exchange.”听
Deliveroo鈥檚 subsequent float听was labelled a disaster听as听many of the most prominent investors in the UK 鈥� Aberdeen Standard, Aviva Investors, BMO Global, charity fund manager CCLA, Legal and General Investment Management and M&G 鈥� refused to participate, citing poor treatment of delivery workers.听Others feared increasing costs relating to regulation of the gig economy.听听
Sunak perhaps wishes he鈥檇 been less vocal about the deal. His government, however, remains keen to attract high-growth companies to the London market, issuing proposals including easier rules for SPAC companies,听reducing the requirements to the free float to protect the first shareholders and allowing a two-class share structure that gives more control to the听founders.听
The head of the London Stock Exchange, David Schwimmer, said:听“Continuing to develop the UK listing scheme is key to providing flexibility for companies looking to list in London, while maintaining high standards of corporate governance.”听
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Deliveroo founder Will Shu鈥檚 decision to have a dual-class share structure 鈥� where his shares hold 20-times the voting power of other investors 鈥撎齝ame in for heavy criticism and were also held up as a reason for the firm鈥檚 poor performance on IPO.听
However,听Manturov听is more optimistic:听鈥淭hese rule changes will naturally make LSE listing more attractive in the longer term.听
“Dual-class share structures were pioneered by tech such giants such as Google and Facebook, giving the founders extended voting rights. Switching to a similar system in London could induce more local unicorns, such as听Revolut听and Checkout.com, to enter the local market, and more likely to grow over time, also听taking into account听that Trustpilot and Deliveroo have already launched their IPOs in London.听
鈥淪PACs are structured differently in the US than in the UK. New York-listed SPACs allow investors to buy back their shares if they are unhappy with the target company.听Meanwhile, in the UK, trading is suspended following the announcement of the merger, which upsets the investors; this is a key difference and the reason why the US SPACs are much preferred.听听
鈥�The Financial Conduct Authority, however, suggested easing the rules that lead to such suspension,听and also said it intends to include a minimum market capitalisation and buyback option to protect SPAC investors.鈥�听
Freedom Finance Europe is a broker giving traders听direct access to the American and European stock markets through its听mobile trading platform听Freedom24.听
鈥�It will probably take time for the global sentiment regarding London listing to start changing for the better, given the new regulations,鈥� acknowledged听Manturov.听听
鈥泪t is important how these regulation changes will be brought in, since it is necessary, on the one hand, to reduce the regulatory pressure and, on the other, not to allow high handedness.鈥�