FCA Overhauls Listing Rules to Boost UK Capital Markets

The Financial Conduct Authority (FCA) announced changes to the UK Listing Rules, set to take effect on 29 July 2024. These revisions aim to simplify the process for companies seeking to list, streamline eligibility criteria, and reduce the burden of shareholder approvals for existing listed firms, and intended to make London a more attractive venue to list

Key Changes

• Unified Listing Category: Consolidates all listings into a single category for clarity and simplicity.
• Streamlined Eligibility Requirements: Eases the path for companies aiming to go public.
• Reduced Shareholder Approval: Limits the need for shareholder votes on various corporate actions.

Notable Reforms

While largely based on the December 2023 draft rules, the final reforms introduce several significant updates:

• Dual Class Share Structures: Continued allowance, now extending enhanced voting rights to pre-IPO institutional investors with a sunset clause of 10 years. This will have appeal to the private equity industry who may looking  for a degree of influence in the future of the business should they retain a stake in the company post float
• Disclosure Requirements: Initial disclosure for significant transactions reduced, with detailed financial and non-financial data required before completion
• Controlling Shareholders: Requirement for relationship agreements waived, while independence from controlling shareholders remains mandatory.

IPO Exit Facilitation

These changes aim to simplify sponsor exits via IPOs:

• Financial Information Eligibility: Reduced requirements, removing the need for three years of historical financials, a three-year revenue track record, or a "clean" working capital statement. Prospectus disclosures remain necessary, easing listing barriers for early-stage and growth companies. This will encourage earlier stage growth companies to list on the market and, of course, may create a degree of tension with the junior AIM market which was originally heralded on its inception as a market for growing businesses
• Expanded Capital Structures: Post-IPO flexibility includes dual class shares with enhanced voting rights for both individual and institutional investors. An attractive feature not only for private equity houses but also founders keen to cash in on their efforts but not keen to lose control
• Business Independence: No longer a prerequisite, enabling companies with franchise models or significant minority stakes to list. This could make the main market an attractive venue for the many US based franchise operations, particularly in the eatery space, look to expand their reach

Transactional Opportunities with Listed Companies

The revised rules may stimulate M&A activities and competitive processes:

No Shareholder Approval for Major Transactions: Boards empowered to pursue strategic M&A and partnerships without mandatory shareholder votes for transactions exceeding 25%. Simplifies deal processes by eliminating the need for FCA-approved ‘class 1’ circulars. Facilitating buy and build strategies without being hampered and delayed by the need for shareholder approvals 

• Related Party Transactions: Independent director approval and third-party fairness opinion suffice for larger transactions, facilitating agreements between listed firms and sponsor-owned entities.
• Break Fees: Listed companies now permitted substantial break fees in private transactions, beyond the previous 1% market cap limit.
• Demergers, Spin-Offs, and Restructurings: Boards granted autonomy to execute significant asset divestments or restructurings swiftly, without shareholder approval.
• Partial Carve-Outs and Joint Ventures: Enhanced appeal for such transactions, as shareholder approval requirements are waived for typical sponsor clauses in joint ventures or minority equity interests.

These reforms reflect the FCA's commitment to nurturing a vibrant UK capital market, embracing risk to propel economic growth effectively.

How can we help?

At Howard Kennedy, our team of experts is well-equipped to guide you through these new changes. We can provide comprehensive guidance on the implications of the unified listing category and streamlined eligibility requirements, helping your company understand the new path to going public. 

Our specialists can assist with understanding the reduced financial information eligibility requirements and the implications of expanded capital structures for IPO exit facilitation. Furthermore, we can help you understand the opportunities for transactional activities with listed companies under the revised rules, guiding you through the changes to shareholder approval for major transactions, related party transactions, and more. 

Please reach out to us if you have any questions or seek legal advice in respect of your compliance with the new FCA rules. We’re here to help you navigate these changes effectively.