The pandemic has dampened almost all economic activities around the world. The U.K is among the countries worst hit by the pandemic, with stringent lockdown restrictions still in place in most areas. Prime Minister Boris Johnson’s cabinet hopes to speed up the economic recovery by encouraging fast-growing European companies to list in London. The British Chancellor of the Exchequer, Rishi Sunak recently said the government is looking to quickly review and accept proposals that will help make London a new hotspot for tech IPOs.

Listing Changes in UK

Ahead of the budget announcement for the new financial year, Sunak, who also serves as the country’s finance minister, stated that this is a golden opportunity for policy reformulation as Britain is no longer obliged to abide by the EU’s listing policies. There has been a long history of European IPOs passing over London to list in the U.S on account of convenient, more company friendly policies. P.M Johnson’s cabinet is looking to change that with a comprehensive set of reforms that are currently up for review. These include allowing dual class structures to give founders more control, reducing free float requirements to avoid diluting early backers and special relaxation of rules for Special Acquisition Companies (SPACs).

These major reforms were suggested in a U.K listings review led by EU financial stability chief, Lord Jonathan Hill. Under these proposals, the U.K is also looking to dilute some investor protection restrictions to provide an impetus to the dormant SPAC market. Major SPAC, Tailwind International’s recent announcement of its New York IPO caused a stir in the international market. The British parliament’s decision to fast track SPAC reforms in the country seems heavily influenced by this. Partner at Linklaters firm Jasom Manketo states:

‘The SPAC proposals, if adopted, would go a long way towards levelling the playing field between London and other European markets which are currently leading the race to be the market of choice for these vehicles’

How Europe compares to USA in terms of SPACs

While Frankfurt, Brussels and Amsterdam exchanges have more lenient SPAC laws, they seem to pale in comparison to those in the U.S. Europe, in general, seems to have majorly missed out on the SPAC phenomenon, which sees shell companies get formed and listed on stock exchanges with the sole purpose of acquiring other promising startups. This listing method became popular on Wall Street last year and has now become the go-to listing method for major tech startups around the world. Europe saw a total of 3 SPAC listings last year, which generated a total of $495 million. In comparison, the U.S raised a total of $78.2 billion generated by over 244 different IPOs.

This astonishing gap in numbers is present because of a few significant reasons. U.S. SPACs are structured differently compared to British SPACs in a way that allows investors to redeem their shares if they’re unhappy with the target firm. Moreover, London-listed SPACs are not allowed to trade once a merger is announced. David Schwimmer, Chief Executive at the London Stock Exchange states:

‘Continuing to evolve the UK listings regime is key to providing flexibility for companies who want to list in London while maintaining high standards of corporate governance’

Dual class structures are an especially attractive listing option for most companies as they give founders enhanced voting rights and other special privileges. This structure for IPOs was first pioneered by tech giants Google and Facebook. Adopting a similar structure in London could entice British unicorn firms such as Revolut and Checkout.com to list locally. Danish review firm, Trustpilot and other large unicorns such as Deliveroo, Wise and Darktrace have recently announced that they have been considering listing in London. This would provide a major boost to the British stock market and economy in general.

Apart from lockdowns, P.M Johnson’s ‘Hard Brexit’ deal has also put Britain at a significant financial disadvantage. It imposes several restrictions upon European workers looking to migrate to the U.K. With a SPAC led IPO boom, the U.K might just be starting its arduous journey towards total financial recovery on the right foot.