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Submit-Brexit London desires to lure tech IPOs and SPACs to New York

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A view of the City of London on a clear day.

Vuk Valcic | SOPA pictures | LightRocket via Getty Images

LONDON – London should reform its listing rules to attract blank check firms and tech unicorns after Brexit, a UK government-commissioned review said Wednesday.

Prime Minister Boris Johnson’s administration is hoping to convince more fast-growing tech firms to list in London to keep UK financial markets attractive after EU rules end on December 31st.

There has long been a trend for European firms to throttle local exchanges in favor of US markets due to cheaper valuations and stock structures. The UK government wants to change that and has issued several proposals ahead of its annual budget announcement.

The review of UK listings, led by former EU financial stability chief Lord Jonathan Hill, contains a number of key proposals to strengthen the London stock market:

Enable dual class share structures to give founders more control. Reduce free float requirements to avoid diluting early funders. Relaxation rules for special purpose vehicles or SPACs.

“If adopted, the SPAC proposals would go a long way in leveling the playing field between London and other European markets that are currently leading the race for the market of choice for these vehicles,” said Jason Manketo, partner at law firm Linklaters.

Europe as a whole has largely missed the SPAC phenomenon, where Shell companies raise funds in public markets to acquire an existing privately owned company. The listing method has grown significantly in prominence on Wall Street over the past year, tempting tech companies to bypass the traditional IPO.

Last year there were only three SPAC listings in Europe that raised a total of $ 495 million. That pales in comparison to the US, which raised a total of $ 78.2 billion from 244 IPOs in 2020. And the U.S. SPACs have already raised more than half of the previous year in just two months to 2021.

More and more SPACs are listed in New York to start a European technology company. In the meantime, the European tech investor Klaus Hommels listed his own blank check company with a US-like structure on the Frankfurt Stock Exchange.

“We asked Lord Hill to lead this review because we wanted bold ideas,” UK Treasury Secretary Rishi Sunak said in a statement late Tuesday. “The UK is one of the best places in the world to start, grow and list – and we are determined to build that reputation after we leave the EU.”

Lord Hill’s criticism “went above and beyond,” said Sunak, adding that he was “very keen that we act quickly to discuss the recommendations”. The UK Treasury announced it would evaluate the review and consult the Financial Conduct Authority – London’s market watcher – to determine the next steps.

SPACs are structured differently in the US than in the UK. New York-listed SPACs allow investors to redeem their shares if they are dissatisfied with the target company. Meanwhile, a common complaint about London-listed SPACs is that trading will be suspended as soon as a merger is announced.

The results were welcomed by David Schwimmer, head of the London Stock Exchange. He said: “The advancement of the UK listing regime is key to providing flexibility for companies looking to list in London while maintaining high standards of corporate governance.”

Two-tier share structures were developed by tech giants like Google and Facebook to give founders a better vote. A move to roll out a similar system in London could result in more local unicorns – more than $ 1 billion worth of tech companies – like Revolut and Checkout.com being listed locally.

On Monday, the Danish ratings website Trustpilot said it was considering going public in London. Several other firms, including Deliveroo, Wise and Darktrace, are rumored to be investigating public debuts in the UK

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Katherine Clark