AQSE is consulting the market about some changes to its rules relating to SPAC admissions.
Currently SPACs are eligible for admission to the Access segment of the AQSE growth market, as long as they have a minimum capitalisation of £700,000 and a free float of 10%. AQSE is concerned that this can result in a disorderly market and excessive volatility because a lack of liquidity arising from low market capitalisation and limited shareholder numbers.
Their proposal is to change their rules to create a new class of “venture company”, which is “an issuer whose predominant purpose or objective is to undertake an acquisition or merger, or a series of acquisitions or mergers (i.e a SPAC) or to finance and/or invest in securities or businesses (i.e. an investing company)”. These venture companies will be subject to additional requirements for admission including:
- a fund raise at or prior to admission of at least £2 million;
- that its market capitalisation be no more than twice net assets; and
- a right for AQSE to suspend and subsequently withdraw a venture company if it hasn’t substantially progressed its investment plan or completed an acquisition or reverse takeover within two years of its admission.
These changes are likely to increase the quality of SPACs listed on AQSE, particularly if as expected the FCA’s recent consultation on the Standard Segment of the Official List ceases to be a viable route for smaller SPACs.
However, it is interesting to note that the £2m is a fundraising requirement, not a market capitalisation requirement. This may drive down the proportion of a company which can be retained by the management team/founders in order to ensure sufficient capital is raised and deter some projects from proceeding on AQSE.
The two year time limit will certainly focus the minds of the management team on the importance of getting a transaction completed but of course such time limits can drive “any deal at any cost” behaviours as they approach and it is to be hoped that AQSE’s new rules will allow a degree of flexibility where a deal is underway but not completed as the second anniversary approaches.
Overall these proposals are to be welcomed, as maintaining quality will be vital as AQSE becomes an increasingly important market, and we look forward to advising our first of the new class of venture companies soon.
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