The era of SPAC Attacks has officially turned to the ‘Attack on SPACs.’ 💀 🗡️ The SEC just announced its interest in passing legislation which would force SPACs to publish important financial information prior to a public listing.
SPAC stands for Special Purpose Acquisition Company. A SPAC IPO is unlike your traditional public offering: when a SPAC launches, it asks people to invest money with the promise that the SPAC will acquire a promising, up-and-coming company. One advantage to SPACs is that a privately-owned company could go public without having to file extensive paperwork.
However, given a number of high-profile failures and dishonest reports from the SPAC world, the SEC wants to regulate the disclosure process. They think it’s wrong that traditional IPOs require extensive reporting for prospective shareholders while SPACs get to avoid much of this process.
Generally, the SEC wants to implement investor protections that prevent SPAC directors from hoodwinking shareholders into voting for undesirable deals. Here’s a brief summary of the SEC’s proposed attack on SPACs:
- SPACs will have to publish information about their sponsors’ compensation from the investment vehicle.
- SPACs must disclose the dilution of shareholders’ equity after an M&A deal to prevent an unfair reduction in stake.
- Executives of companies acquired by SPACs will be held accountable for any wrongdoings of the SPAC’s directors or sponsors.
- Any information related to a potential M&A deal must be disclosed to SPAC shareholders 20 days prior to a shareholder vote.
- SPAC sponsors and directors will have guidelines around the language they use to “sell” deals to their investors. In other words, the SEC wants to be sure that investors aren’t bullied or tricked into voting for a deal.
SPAC listings generated a record $160 billion in 2021, but many SPAC darlings from the pandemic era are suffering in 2022. It should be interesting to see the results of the SEC’s crackdown on blank check companies. 👀