The new regulations and revisions bring about a range of changes, including more comprehensive disclosures regarding conflicts of interest, compensation for SPAC sponsors, dilution, and other crucial information that investors need to know about SPAC IPOs and de-SPAC transactions
The Securities and Exchange Commission has taken a significant step today by implementing new regulations and changes to improve transparency and safeguard investors in initial public offerings (IPOs) conducted by special purpose acquisition companies (SPACs) and subsequent business combination transactions between SPACs and target companies (de-SPAC transactions).
SPAC IPOs and de-SPAC transactions serve as a gateway for private companies to enter the public markets. Recognizing the intricacies involved in these transactions, the Commission aims to bolster investor protection by ensuring adequate disclosure and responsible utilization of projections in SPAC IPOs and de-SPAC transactions. Additionally, these rules address broader concerns regarding the protection of investors in shell companies and blank check companies, including SPACs.
“Just because a company uses an alternative method to go public does not mean that its investors are any less deserving of time-tested investor protections,” said SEC Chair Gary Gensler. “Today’s adoption will help ensure that the rules for SPACs are substantially aligned with those of traditional IPOs, enhancing investor protection through three areas: disclosure, use of projections, and issuer obligations. Taken together, these steps will help protect investors by addressing information asymmetries, misleading information, and conflicts of interest in SPAC and de-SPAC transactions.”
The new regulations and revisions bring about a range of changes, including more comprehensive disclosures regarding conflicts of interest, compensation for SPAC sponsors, dilution, and other crucial information that investors need to know about SPAC IPOs and de-SPAC transactions. Additionally, these rules mandate that registrants provide investors with additional details about the target company, empowering them to make well-informed voting and investment decisions when it comes to de-SPAC transactions.
These rules aim to align the required disclosures and legal responsibilities in de-SPAC transactions more closely with those in traditional IPOs. For instance, under certain circumstances, the rules necessitate that the target company signs a registration statement filed by a SPAC (or another shell company) in relation to a de-SPAC transaction. This would make the target company a "co-registrant" and hold them accountable for the disclosures made in that registration statement. Furthermore, the rules restrict certain blank check companies, including SPACs, from benefiting from the safe harbor protection of the Private Securities Litigation Reform Act of 1995 for forward-looking statements.
Regarding de-SPAC transactions, there are certain rules in place that pertain to disclosure requirements for projections. These rules mandate the disclosure of all significant bases and assumptions underlying the projections. Additionally, the rules provide updated and expanded guidance on the use of projections in all SEC filings.
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