A change in stockmarket rules will benefit us all
The “SPAC” boom all the rage in the US is passing the UK’s stricter stockmarket by. A change in the rules would be good for everyone, says Merryn Somerset Webb.
On 1 March 2021 a new firm registered with the US Securities and Exchange Commission to list its shares. It is called Do It Again Corp. (yes, really) and has been formed “for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganisation or similar business combination with one or more businesses”. It is basically raising lots of cash to do – well, something – something you will find out about later.
If this reminds you of the (unverified) story of the company floated during the South Sea Bubble to carry out an undertaking “of great advantage but no one to know what it is”, you won’t be alone. There is much concern that a fully formed bubble in this kind of blank-cheque company, or SPAC (special purpose acquisition company), is under way in the US. They are, notes Jeremy Warner in The Daily Telegraph, “all the rage”. Last year $80bn was raised in the US (with around $3.4bn creamed off by investment bankers). This year we’ve already seen over 170 offerings, raising half that again.
It’s classic top-of-market stuff. No surprise then that it’s hard to find approving voices. Berkshire Hathaway’s Charlie Munger says the world would “be better off without” this kind of “crazy speculation”. Investing guru Jeremy Grantham has dismissed them as “thoroughly reprehensible” money-for-nothing schemes. They may both be right. If so, many people will be pleased that the UK’s listing rules just don’t work for SPACs – trading in their shares is suspended when they find something to buy, for example – so the boom has thus far bypassed us. But there is an important point to SPACs: they allow private firms to list quickly and easily (by merging with or being bought by the newly listed cash shell). The Financial Times reckons that’s a bad thing: “normal initial public offering (IPO) disclosure requirements... are in themselves designed to protect investors”. But it might actually be a very good thing.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
One maddening aspect of the last decade has been the fall-off in the listing of new growth firms in the UK – a trend you can map against the rise of regulation around IPOs and the endless administration that goes with being listed. And one of the maddening things about this month has been watching some of our brilliant firms (eg, Babylon Health) talk of going to the US via a SPAC instead of listing here.
Lord Hill this week completed a government-commissioned review of UK listing rules and seems to be as frustrated as us. He recommends we “liberalise” the rules on SPACs; allow dual-class share structures (so founders can list but know they can keep some control); and cut the minimum free float (the percentage of shares that can be freely traded) from 25% to 15%. There are arguments against all these things, but the argument for them is better.
The public markets are vital to wealth creation. If we want all retail investors to have similar opportunities as professionals to buy into new, exciting growth companies (and we do), it is surely better to take the risks involved in making listing easier than those involved in the best firms not listing at all (or listing elsewhere). In his Budget this week the chancellor talked about making the UK the “best place in the world” for high-tech, innovative companies to operate and raise capital. Stockmarket reform will surely play a major part in that – to the long-term benefit of us all.
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).
After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times
Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast - but still writes for Moneyweek monthly.
Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.
-
Rightmove rejects £5.6bn takeover bid from Rupert Murdoch’s REA
Rightmove said the offer was "wholly opportunistic and fundamentally undervalued" the FTSE 100 company
By Chris Newlands Published
-
Renters' Rights Bill: landmark reforms to put an end to no-fault evictions
The long-awaited housing bill is to be unveiled in parliament on Wednesday - how will it affect you?
By Chris Newlands Published
-
The peak of the AI frenzy has passed
When did the AI frenzy peak and what does it mean for tech companies?
By Alex Rankine Published
-
The battle against heart disease and how to invest in it
Heart disease is soaring due to rising obesity and an ageing population. But new drugs, treatments and diagnostic tools are on the way.
By Dr Matthew Partridge Published
-
Woodside Energy: an undervalued energy play
Woodside Energy offers a cheap way to invest in the growth of the global LNG market. Should you invest?
By Rupert Hargreaves Published
-
Small caps: how to ride the recovery wave of UK equities
Professional investor Ken Wotton highlights British small caps that hit the sweet spot of the British equity market
By Ken Wotton Published
-
Investing in defence: the easiest way to buy into the boom
The defence sector has taken off, but the opportunities for stock picking are more limited. We explain what to buy
By Frederic Guirinec Published
-
The investment opportunities in a bear market
As equities fell sharply in August, Max King explores the investment opportunities in a bear market
By Max King Published
-
How to invest in Web 3.0
Here are three core holdings at the forefront of Web 3.0 development that could shape the next era of the internet, according to Chanchal Samadder, head of product at ETC Group
By Chanchal Samadder Published
-
How investors can cash in on undersea cables
Undersea cables are in demand as the renewable energy boom has sparked a race to rewire the world
By Rupert Hargreaves Published