M&A insurance to the fore as UK government backs SPACs

Sponsors of special purpose acquisition companies (SPACs) are using M&A insurance to protect investor interests while giving investors access to potentially high-growth businesses, according to McGill and Partners. SPACs have been in the news recently following the publication of a report, The UK Listing Review, led by Lord Hill, which was launched by UK Chancellor Rishi Sunak in November last year, “to further enhance the UK’s position as an international destination for equity listings”. Among a number of recommendations, the review calls for the liberalisation of the rules regarding SPACs, which can require trading to be suspended in the shares of SPACs on the announcement of a potential acquisition. It also calls for the provision of additional protections for shareholders at the time of the acquisition, such as a shareholder vote and redemption rights. The review notes: “To address what appears to be a barrier to the development of a potentially important source of equity financing and route to market for UK companies, including in particular in relation to technology-related companies, we recommend the FCA removes the rebuttable presumption of suspension and replaces it with appropriate rules and guidance further to increase investor confidence in these companies – similarly to how commercial companies are treated.” The report and its recommendations have been welcomed by Mr Sunak: “We asked Lord Hill to lead this review because we wanted bold ideas. 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. That means boosting the UK’s business environment and making sure we continue to lead the world in providing open, dynamic capital markets for existing and innovative companies alike, whilst protecting the high standards that underpin our status as a world-leading financial centre. The review has more than delivered and I’m keen we move quickly to consult on its recommendations, cementing the UK’s reputation at the front of global financial services.” James Swan, a partner at McGill and Partners, said: “The Chancellor’s plans will be welcomed by many who had feared that London was falling behind New York, with particular concern that many tech businesses which had started and been nurtured in London were having to look to New York to capitalise on the opportunities that a de-SPAC acquisition presents to accelerate growth. Some investors will be wary of SPACs’ historical record, but the trend in the US has shown that SPACs can be a viable alternative to a conventional IPO for growth companies, with many highly respected sponsors having raised SPACs in recent years.” He added: “These sponsors have brought with them sophisticated dealmaking expertise and approaches. They typically conduct a rigorous due diligence exercise and many are using M&A insurance, which has long been an effective tool of leading private equity funds, to protect against breaches of the representations or warranties given on the acquisition. These tools allow SPAC sponsors to protect investor interests while giving investors access to potentially high-growth businesses that might otherwise have been deterred from going public by the time and cost of the traditional IPO track.”

M&A insurance to the fore as UK government backs SPACs

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