On January 24, 2024, the SEC adopted final rules to “enhance disclosures and provide additional investor protections” in offerings by SPACs and subsequent de-SPAC transactions. Consistent with the proposals floated by the SEC in March 2022, the final rules generally put de-SPACs and IPOs on the same footing in areas such as the use of projections and potential liability. They also mandate additional disclosures about SPAC entities. Among other things, the new rules:
- require disclosures about SPAC sponsor compensation, conflicts of interests, dilution, and other information regarding both the SPAC and the target company;
- require, in certain situations, the target company in the de-SPAC transaction to be a co-registrant with the SPAC itself, thereby subjecting both entities to responsibility for the disclosures in connection with the transaction;
- deem any business combination involving a reporting shell company to be a sale of securities to the reporting shell company’s shareholders; and
- better align the regulatory treatment of projections in de-SPAC transaction with that of IPOs.
The new rules do not appear to contain any surprises; in fact, to a significant degree, they codify the treatment accorded SPAC IPOs and de-SPAC transactions in recent years. That being said, the new rules may help to squelch some of the myths that have surrounded both types of transactions, including that de-SPAC transaction disclosures were not subject to review by the SEC (and thus could be completed far more quickly) and that projections could be included in de-SPAC disclosures with minimal or no risk. In fact, unlike some of the SEC’s recent adventures in rulemaking, the new SPAC rules seem to make sense.
The final rules will become effective 125 days following publication in the Federal Register.
Will the new rules kill SPACs? It’s unclear, in part because the market for SPAC and de-SPAC transactions has been on life support (or close to it) for a few years. However, SPACs have been around in one form or another for many years, and it seems reasonable to assume that they will be back, possibly with a new acronym or two, at some point.
Please direct any questions or observations to Gunster securities law and corporate governance practice leader Bob Lamm.
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This publication is for general information only. It is not legal advice, and legal counsel should be contacted before any action is taken that might be influenced by this publication.
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