Last Wednesday, the Securities and Exchange Commission (SEC) voted 3-2 to adopt rules that make SPAC (Special Purpose Acquisition Company) deals similar to traditional IPOs.
Wednesday’s decision was not unexpected. The SEC has been exploring potential SPAC rule changes since 2020 and 2021 when, according to SPACInsider, more than 869 SPACs raised $246 billion. This surge sparked SEC concerns about the risks SPACs could present to investors, which led the Commission in 2022 to propose new disclosures regarding sponsors, conflicts of interest, and sources of dilution.
The details of the rules and amendments are included in the SEC’s January 24 announcement titled, “SEC Adopts Rules to Enhance Investor Protections Relating to SPACs, Shell Companies, and Projections.” In the announcement, the Commission discusses the need to enhance investor protection in SPAC IPOs and de-SPAC transactions with respect to the adequacy of disclosure and the responsible use of projections. In addition, the release touches on the need to address broader investor protection concerns involving shell companies and blank check companies, including SPACs.
How will it deliver? As noted in the SEC’s Fact Sheet, the final rules will do so by:
- "More closely aligning the required disclosures and the legal liabilities that may be incurred in de-SPAC transactions with those in traditional IPOs, including by deeming the target company an issuer that must sign a Securities Act registration statement filed by a SPAC (or other shell company) in connection with a de-SPAC transaction.
- Requiring additional disclosures regarding, among other things, SPAC sponsors, SPAC sponsor compensation, conflicts of interest, dilution, and the target company.
- Requiring additional disclosures in de-SPAC transactions regarding any determination by a board of directors or similar body as to whether the de-SPAC transaction is advisable and in the best interests of the SPAC and its shareholders, if required by law, and any outside report, opinion, or appraisal received that materially relates to the de-SPAC transaction;
- Requiring a 20-calendar-day minimum dissemination period for prospectuses and proxy and information statements filed for de-SPAC transactions where consistent with local law; and
- Requiring a re-determination of smaller reporting company status following the consummation of a de-SPAC transaction and requiring such re-determination to be reflected in filings beginning 45 days after the de-SPAC transaction’s consummation."
As for timing, the SEC’s announcement states that the new rules will become effective 125 days after publication in the Federal Register. However, businesses will not need to begin complying with the new structured data requirements, including the use of inline XBRL, until 490 days after the final rules are published. For any business that will be impacted, DFIN is ready to provide answers. We have deep SPAC experience and have been following these SEC developments every step of the way. We are eager to share our insights and provide expert guidance on how best to navigate a changing SPAC landscape.