Spac revolution set to unlock Big Bang 2.0 for the City of London

The UK is set to spark a second Big Bang for the City post-Brexit, with a landmark government report calling for regulators to allow Spacs to list in London and ease a range of share listing restrictions.

Lord Jonathan Hill’s report into future financial services regulation, released today, calls for a range of deregulatory measures that would aim to “ensure the UK remains one of the most attractive places to grow and list successful innovative companies”.

The report, which is thought to have been very well received by Rishi Sunak and Boris Johnson, suggests opening up London to Spacs (Special acquisition companies), the so-called blank cheque firms that have become one of the most talked about trends in finance.

Hill also called for a swathe of deregulatory measures that would make London a more enticing destination for companies to go public, including giving more power to start-up founders after listing on the London Stock Exchange.

Amsterdam surpassed London as Europe’s largest share trading centre in January, weeks after the Brexit transition period ended, piling pressure on Sunak to improve the City’s competitiveness.

Sunak told City A.M. in January that the City could see a post-Brexit Big Bang 2.0 – referring to the period of financial services deregulation in London in the 1980s – after being released from EU laws.

In his Budget 2021 speech today Sunak welcomed the review “changing the rules to encourage more companies to list here. Let me thank Lord Hill for leading this landmark review… …the FCA will shortly be consulting on his proposals”.

The chancellor today said Hill’s review “more than delivered” on proposing “bold ideas” on how to improve the City’s competitiveness in the long-term.

“I’m keen we move quickly to consult on its recommendations, cementing the UK’s reputation at the front of global financial services,” he said.

Similarly the Financial Conduct Authority (FCA) has said it will “carefully consider” the recommendations and plans to make relevant rules by the end of the year, subject to consultation feedback.

Spacs are created to raise capital by going public, with the purpose of then acquiring an existing company.

They offer private companies a faster and more predictable way to go public. 

Spacs have enjoyed popularity in the US – nearly 180 Spacs have been filed in New York alone – but current regulation means that none have launched in London.

LVMH founder Bernard Arnault recently launched his own, while Richard Branson’s Spac VG Acquisition went public last October.

Some of the UK’s most promising tech startups are looking to the US to merge with a Spac, including Cazoo and Babylon, according to the Financial Times. 

Amsterdam is also set to open its doors for Spacs to list on its markets, which could spark a race to become Europe’s capital for the blank cheque companies.

Financial services lobby group TheCityUK said it was in favour of all Hill’s suggestions, including the call to “liberalise” regulations to allow Spacs to list in the UK.

TheCityUK chief executive Miles Celic said: “The UK has one of the world’s foremost listing regimes, but we cannot be complacent in the face of fierce competition from the US and increasingly from financial centres in Asia.”

Dual class shares

The report also calls for restrictions to be relaxed on the use of dual class shares, which allow company founders to maintain some control over firms after they go public by giving them deciding votes on future mergers and acquisitions.

Free float requirements – the amount of a company’s shares that are in public hands – should also drop from 25 per cent to 15 per cent, according to Hill.

The Financial Conduct Authority’s (FCA) current rules don’t allow for dual class share structures on the stock exchange’s premium listing segment, which is comprised of FTSE companies.

Introducing these share structures more widely could potentially encourage more fintechs to list in the UK, after the government-commissioned Kalifa review into UK fintech found it would be “particularly attractive” to founders. 

The City of London Corporation last year called for dual share listing rules to be relaxed to encourage tech firms to float in the UK.

Edward Twiddy, chief customer officer at fintech Atom Bank, said the policies recommended by Hill would make the UK a more attractive investment hub for successful start-ups.

“Constant evolution and refinement of the investment and regulatory landscapes are key drivers for achieving this goal, and Atom is fully behind the proposals to ensure that there are more routes for fintechs to achieve a public listing, which we believe will benefit companies, investors and competition alike,” he said.

Victor Trokoudes, co-founder and chief executive of fintech Plum, added: “As Plum is a high-growth company with international ambitions, we want to know that the UK is the right place to grow and mature.

“Innovations like the ones outlined in today’s Budget show the government is heading in the right direction, towards building very big businesses.”