New rules designed to protect investors in initial public offerings by special purpose acquisition companies (SPACs) have been adopted by the Securities and Exchange Commission.
In a news release, the SEC said it approved the rules in order to tighten disclosure requirements in these IPOs and in subsequent business combination transactions between SPACs and target companies (de-SPAC transactions).
SPACs, sometimes called “blank check companies”, are publicly traded corporations formed to search for a private company to merge with and raise money from investors through an initial public offering, giving the targeted company a shorter process for being listed than a traditional IPO.
The SEC said the complexity of these transactions prompted the new rules as a way to enhance investor protection in SPAC IPOs and de-SPAC transactions, particularly with respect to adequate disclosure and the responsible use of projections.
“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.”
Gensler had previously asked the SEC staff to recommend how investors can be better informed about fees, projections, and conflicts during all stages of SPACs, and how they can receive those disclosures when they are deciding whether to invest.
The newly adopted regulations will require enhanced disclosures about conflicts of interest, SPAC sponsor compensation, dilution, and other information that is important to investors in SPAC IPOs and de-SPAC transactions. Companies will have to give investors additional information about the target company so they can make informed decisions about de-SPAC transactions.
In addition, the rules will more closely align disclosure and legal liabilities for de-SPACS with those of traditional IPOs. There will also be disclosure requirements for de-SPAC transactions related to projections, including disclosure of all material bases of the projections and all material assumptions underlying the projections. Guidance on the use of projections will be updated and expanded in all SEC filings.
The rules will become effective 125 days after publication in the Federal Register.
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