Special purpose acquisition companies (SPACs) are a relatively new phenomenon in the UK, but they’ve grown in popularity over the last two years. Now, the London Stock Exchange (LSE) is getting ready to welcome its newest SPAC company.
Financials Acquisition Corp, a UK SPAC that focuses on insurance technology, has announced plans for a £150 million listing on the LSE. Here’s everything you need to know about this planned SPAC listing, including whether you can invest in it.
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New SPAC to list on the LSE: what do you need to know?
Financials Acquisition Corp plans to float 15 million shares at a price of £10 per share to raise £150 million.
The company will then seek to merge with a technology-enabled company or business that operates in or is related to the insurance or broader financial services industry.
According to the SPAC, “The companies being considered for a business combination by Financials Acquisition Corp must have the potential for sustainable advantage beyond short-term growth, significant bottom-line growth, a strong management team with a solid track record of value creation who are ready for public markets, as well as operating in parts of the insurance value chain where technology offers a structural operating and/or distribution advantage.”
The listing’s sponsor is FINSAC LLP. This is a limited liability partnership founded by experienced insurance and financial services executives William Allen and Andrew Rear.
FINSAC also has the backing of certain institutional strategic investors and industry experts.
How do SPACs work?
SPACs do not operate their own businesses. Instead, they are formed solely for the purpose of acquiring or merging with an existing company.
A SPAC raises funds through an initial public offering (IPO). The SPAC then uses the money to fund a merger or the acquisition of a target private company.
Once the merger or acquisition happens, the new company begins trading on the stock market under its new name. A SPAC, in essence, provides a faster and smoother path for private companies to go public.
The UK could become a more attractive destination for SPACs in the future, following a revision of SPAC listing rules by the FCA. Recent rule changes that could entice more SPACs to list in the UK include:
- Lowering of the minimum size threshold of money raised from third-party investors when a SPAC’s shares are first listed from £200 million to £100 million.
- Removal of the suspension of trading in a SPAC’s shares upon the announcement of a potential merger or acquisition.
Can you invest in a SPAC?
Once a SPAC is listed, investors can buy its shares in the same way as shares of any other publicly-traded company.
One easy and fast way to buy shares is through a top-rated share dealing account.
However, if you plan to invest an amount less than £20,000, consider investing via a stocks and shares ISA. The main advantage of a stocks and shares ISA is that your investment returns are typically free from tax. Check out our list of top-rated stocks and shares ISAs in the UK to see if you can find one suitable for your needs.
What do you need to know before investing in a SPAC?
SPACs are still a relatively new phenomenon, despite their growing popularity.
Remember that a SPAC has no business of its own. Consequently, there are no business performance metrics you can analyse to determine whether the entity has any long-term potential.
When you invest in a SPAC, you are essentially betting on the expertise of the SPAC’s sponsor and management to lead it to a merger or acquisition that will result in a profitable return on your investment.
So, before you invest, do your homework and make sure you are comfortable with the risks involved.