The advantages of a standard listing for cash shellsPrint publication
The use of “cash shells” with a quotation on the London Stock Exchange (LSE) is a tried and tested way of generating the cash to fund an acquisition trail. Typically a cash shell will join the stock market without any trading history or assets but with the cash resources and managerial expertise to set about buying target businesses. Cash shells are often used as a way of effecting a reverse takeover, where the target is larger than the purchaser (i.e. the cash shell) with the result that the target shareholders become majority shareholders in the purchaser.
Around a decade ago, when cash shells first came to prominence, they were quoted on the LSE’s AIM market (AIM). The regulation of cash shells quoted on AIM was duly tightened up with the introduction, for instance, of a requirement that the cash shell must raise not less than £3 million and more restrictions on its investment policy.
Cash shells will not be able to secure a listing on the Premium Segment of the Official List. To do this they would need to produce, inter alia, at least three years’ worth of audited accounts and a revenue stream in respect of that period. Such stipulations do not, however, apply to companies seeking a listing on the Standard Segment and we have seen a number of cash shells obtaining a listing on the Standard Segment in recent years, since it became possible for UK companies to list on the Main Market by way of a standard listing in 2010, for example, Platform Acquisition Holdings Ltd and Nomad Holdings Ltd.
Standard listing applicants must prepare a prospectus and get it approved by the UKLA, but in other respects the regulatory regime applicable to standard listed companies is more relaxed than it is for AIM companies. In particular, a standard listed cash shell:
- does not need not to appoint a sponsor (an AIM cash shell is required to appoint a Nomad)
- does not need to obtain shareholder approval for a reverse takeover (an AIM cash shell does)
- does not need to obtain the approval of a sponsor to related party transactions
is not subject to restrictions on share dealing by the issuer or management (subject to the statutory requirements)
- is not required to offer new shares for cash on a pre-emptive basis to shareholders (subject to the statutory requirements)
- is not required to comply with any corporate governance codes.
These benefits have encouraged a number of cash shells to seek a standard listing as opposed to an admission to AIM since 2010. In many cases, the standard listing will be transient, with the company moving to a premium listing after it has completed its acquisition programme.
There are, of course, ways in which a standard listing may be less attractive than admission to AIM. The requirement for approval of the prospectus, and the delay that may entail, is one. But management teams or investors considering establishing a quoted cash shell for acquisition purposes should at the very least consider a standard listing an as alternative to an AIM quotation.