It’s a tough day for special purpose acquisition companies, or SPACs, which had already fallen out of favor after roughly 18 months in the limelight.
Senator Elizabeth Warren is planning a bill that targets the SPAC industry, her office announced today. Called the “SPAC Accountability Act of 2022,” the bill would expand the legal liability of parties involved in SPAC transactions, close loopholes that SPACs have “long exploited to make overblown projections,” and lock in longer the investors sponsoring a deal.
Even if the bill never passes, the SEC is today concluding a 60-day public comment period on a number of its own proposed guidelines for SPACs, specifically around disclosures, marketing practices and third-party oversight.
As TechCrunch noted in a weekend look at the astonishing number of electric vehicle SPACs to flounder, assuming the SEC’s rules are approved, the barrier of entry to going public via a SPAC will rise to the same level as companies choosing the more traditional IPO listing process, including to hold liable banks associated with SPACs for misstatements related to the merger. (To protect itself, Goldman Sachs has already said it’s no longer working with most SPACs that it took public and pausing work with new SPAC issuance.)
It’s not as if either initiative will abruptly stop SPACs in their tracks. They’d already begun losing momentum last year, when the SEC warned in March 2021 that SPACs weren’t accounting correctly for investor incentives called warrants. Indeed, while 247 SPACs were closed in 2020, most of the SPACs raised last year (613!) came together in the first half of the year, before the SEC made it quite so plain that it planned to do more on the regulatory front.
Now those many blank-check companies need to find suitable targets in a market turned bearish, and the clock is ticking. Given that blank-check companies are typically expected to find and merge with a target company within 24 months of investors funding the SPAC, if those hundreds of companies can’t complete mergers with candidate companies within the first half of next year, they’ll either have to wind down (which can means millions of lost dollars for SPAC sponsors) or else seek out shareholder approval for extensions.
It’s even worse than it sounds. With the time between when a deal is announced to when the SEC has time to review it taking up to five months, according to SPACInsider founder Kristi Marvin, even SPACs that strike a deal tomorrow couldn’t ask their shareholders to vote on it until roughly November.
In fact, while lawmakers and regulators seem late to the party, they will undoubtedly be watching for unnatural acts as SPAC sponsors do everything in their power to cross the finish line.
Already, a number of SPAC sponsors has already begun to ask their shareholders for more time to get a deal done, some of them apparently hoping investors might warm again to the once-obscure financial vehicles. Magnum Opus, the SPAC that planned to take Forbes to take it public, …read more