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An announcement made on 23 April 2023 by Hambro Perks Acquisition Company Ltd ("Hambro Perks") underlines the serious difficulties currently faced by the UK SPAC market and the SPAC market globally. The company confirmed that it is giving up its search for a business combination and will be redeeming its shares and winding itself up. Hambro Perks came to the London market in November 2021 as the first UK SPAC to list under the new “SPAC-friendly” rules that the FCA introduced in August of that year. It extended its deadline for finding a de-SPAC target until the end of November 2023, by a shareholder vote passed in February of this year but has now had to admit defeat in finding an appropriate target and so will be returning funds to its shareholders prior to its liquidation.
London's SPAC-friendly listing rules
Prior to the FCA's Listing Rules change, a major disincentive to SPACs listing in London was a Listing Rule requirement - LR 5.6.8 G - which meant that in most cases when a SPAC found a target business with which to merge or acquire (a "de-SPAC transaction"), it would be forced to accept a suspension of listing prior to updating the market with financial and other information about the new business of the listed entity. The changes that the FCA introduced in August 2021 to allow a special category of "SPAC" shell company to de-SPAC without suffering a suspension in its listing, require the SPAC entity to satisfy a number of listing conditions (listed below), some of which (if not in their specifics) were also adopted by the Singapore and Hong Kong markets later in 2021 as they joined the race to attract SPAC listings and investment.
A SPAC - in the sense of a standard listed "cash shell acquisition company" - market had developed in the UK before the big SPAC craze in the US took off in 2019 but that was focused on small SPACs raising minimal amounts of equity to qualify for a listing (under the pre-December 2021 Listing Rule requirements of an initial minimum market capitalisation of £700,000). The Listing Rule changes were designed to encourage much larger SPACs to join the UK markets, raising considerably larger amounts of acquisition capital in funding-readiness for making acquisitions and adopting the typical SPAC structures seen in the US - with share and warrant issuances and protections for SPAC investors provided through the ring-fencing of the SPAC's initial capital raise and redemption rights if a de-SPAC opportunity was not found within a set timetable.
The UK "SPAC" Listing Rule conditions - set out in LR 5.6.18A G - require the SPAC to meet seven or so requirements in order to avoid a listing suspension. These include: raising at least £100 million from public (i.e., independent) shareholders, placing the amounts raised on the SPAC's IPO into some form of escrow or trust arrangement, setting a timetable (24 months and further extendable for up to a total of 18 months) for a de-SPAC target to be acquired, independent board and shareholder approval for the de-SPAC transaction, disclosure of any director conflicts and redemption rights if the de-SPAC does not take place.
Hambro Perks calls it a day
Since Hambro Perks IPO’d in November 2021 (raising £140 million) there have been 23 other SPACs listing on the London Stock Exchange's Main Market but only four of those other SPACs have listed as “large” SPACs – i.e., SPACs which satisfy the requirements mentioned above in order to avoid a suspension of listing - and none of the five large SPACs have acquired a de-SPAC target so far. With markets remaining very uncertain and despite having extended the deadline for finding a de-SPAC target to 30 November 2023, Hambro Perks has decided to call it day rather than spend more money on searching for a de-SPAC opportunity. To minimise its continuing costs, it is reducing its board to two directors. Its sponsor will get nothing back for its public shares while the public shareholders should get their money back, plus interest earned on the escrow account, less taxes and a total of £100,000 towards dissolution expenses.
The other large UK SPACs
The four other large UK SPACs still have some time before their deadline for de-SPACing or winding up expires although one of them - Hiro Metaverse Acquisitions I S.A. - with a deadline expiring next month has, like Hambro Perks did, decided to call a shareholder meeting to seek approval for a nine month extension.
The outlook for other UK SPACs
All the other “small” listed UK SPACs are not constrained by a Listing Rule-mandated deadline for de-SPACing but nearly all have given commitments in their prospectuses to try to find a de-SPAC target within a specified time period and if that is not possible, to consult with shareholders over a possible extension or a winding up. They have all raised minimal IPO amounts under the previous minimum market capitalisation requirements of the Listing Rules – i.e., £700,000 rather than the £30 million required for listed shares since December 2021. These include some which have IPO'd since 2021 but which qualified to remain subject to the old £700,000 test under transitional arrangements put in place when the increase to £30 million took place. In view of the new £30 million capitalisation requirement, it must be doubted whether we will see many more SPACs listing in the current environment. Also, what appetite investors will have to continue to support them in their searches for a de-SPAC.
Although the SPAC market is not totally dead, it is now a shadow of its former self. Only one "small" SPAC has listed on the Main Market so far this year - Seed Capital Solutions - and while another UK business (Zura Bio) also took a SPAC route to listing last month, it chose to list on NASDAQ rather than in London (reportedly raising $65 million).
The writing was on the wall for the SPAC market last year when the premier market in the US suffered falls of around 90% in the number of, and amounts raised by, SPACs. Are SPACs just a passing fad or are they simply a casualty of the unremittingly strong headwinds that equity markets have been facing since the record-breaking activity many markets saw in 2021, with the prospect of a return to popularity when macro-economic conditions and investor sentiment improve? If IPO activity more broadly starts to recover in 2023, there will no doubt be many sponsors and private business keen to see how quickly (or not) that translates into a revival of the SPAC market, both in the UK and globally. Watch this space!
