The role of SPACs: The perspectives of security regulation and corporate governance

Chih-Yung Hsu

Special purpose acquisition companies (SPACs) are not defined in the Listing Rules of the UK. According to the Financial Conduct Authority (FCA), a SPAC is a shell company whose sponsors raise funds with the objective of buying one or more companies. A SPAC raises funds through an initial public offering (IPO) of its shares. It retains the funds to use at a later date to make an acquisition. SPACs do not have an operating business model when created, but their management works to identify and then negotiate with potential acquisition targets. Typically, a SPAC seeks out a mature private company to buy in a reverse takeover and form a new operating company, which will need to apply to be listed on public markets. ¹ Moreover, the sponsors of a SPAC are the key people responsible for progressing or supporting the company, including the founder and directors. Thus, the sponsors of a SPAC are not the same as the FCA Handbook definition of a sponsor (ie, a Premium Listed issuer). ² The purpose of this definition is to strike a balance between the different competing interests, including consumer protection, market integrity, and the attraction of companies to list in the domestic capital market. The method of regulating SPACs can influence this balance of interests. Therefore, such regulation is a complex policy decision. Moreover, the second article in this two-part installment will suggest reforms to the Listing Rules based on comparative legal research. The suggested reforms comply with the goals identified in the Listing Review issued by Lord Hill.