The U.S. Securities and Exchange Commission (SEC) recently introduced regulations targeting ‘special-purpose acquisition companies’ (SPACs). After a review of the extensive 500-page document by ARC Group advisors and industry experts, we find that these new rules do not significantly change how SPACs are set up or how a DeSPAC operates. The regulations, adopted by a 3-2 vote by the SEC Commission, largely align with existing practices among well-managed SPACs and DeSPACs.
The SEC’s final rules, enacted nearly two years after initial proposals for increased oversight of SPACs, reflect feedback from the industry, resulting in some proposed rules not being implemented. SEC Chair Gary Gensler highlighted the importance of aligning SPAC operations with the regulatory framework of traditional IPOs, aiming for better alignment between the two. Consequently, the new regulations now mandate disclosure of SPAC sponsors’ compensation, potential conflicts of interest, and the likelihood of share value dilution. While these disclosures were already standard practice for most SPACs, there may be changes in how some disclosures are presented.
Three Main Aspects of the New SEC Rules Taking Effect:
Enhanced Disclosure:
- Aligning disclosures and legal liabilities in de-SPAC transactions with those in traditional IPOs.
- Requiring additional disclosures about SPAC sponsors, compensation, conflicts of interest, dilution, and the target company.
- Mandating disclosures about the board’s determination on the advisability of the de-SPAC transaction and any relevant external reports, opinions, or appraisals.
Enhanced Projections Disclosure (No Safe Harbor on Projections):
- Making the safe harbor for forward-looking statements unavailable for blank check companies, including SPACs.
- Adding disclosure requirements for projections, including their material bases and assumptions.
- Updating and expanding guidance on using projections in all SEC filings.
Enhanced Registration:
- Requiring target companies to sign Securities Act registration statements filed by SPACs in de-SPAC transactions.
- Implementing a 20-calendar-day minimum dissemination period for prospectuses and proxy and information statements in de-SPAC transactions where allowed by local law.
The new SEC rules will come into effect 125 days after publication in the Federal Register (expected soon). These rules don’t change how SPACs operate and shouldn’t affect their viability as an alternative path to public listing for many companies.
