The Securities and Exchange Commission (SEC) has implemented comprehensive rules to strengthen the protection of investors within Special Purpose Acquisition Companies (SPAC) and their subsequent business combination transactions, commonly known as de-SPAC transactions.
SPACs have gained significant traction as an alternative method for private companies to enter the public markets. In light of the challenges involved in these transactions, the SEC's Chair, Gary Gensler, has emphasized how crucial it is to adopt rules similar to those for traditional Initial Public Offerings (IPOs).
These measures focus on the requirements for adequate disclosures, responsible use of projections, and heightened obligations for issuers.
Aligning SPAC Disclosures with IPO Standards
The SEC's latest rules address concerns surrounding SPAC IPOs and de-SPAC transactions by mandating adequate disclosures. The securities watchdog has emphasized critical areas, such as conflicts of interest, SPAC sponsor compensation, dilution, and other essential information vital for investors navigating the complexities of SPAC offerings.
Gensler mentioned: "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."
By requiring registrants to provide additional information about target companies, the SEC aims to empower investors, enabling them to make well-informed voting and investment decisions.
One notable aspect of the rules is the alignment of regulatory disclosures and legal liabilities between de-SPAC transactions and traditional IPOs. The rules stipulate that, in certain situations, the target company must sign a registration statement, making it a "co-registrant" and assume responsibility for disclosures in that document.
Projection Disclosure Requirements
The SEC's rules also clarify the realm of projections in de-SPAC transactions. Target companies must disclose all material bases and assumptions underlying projections, offering a more transparent view for investors.
Additionally, these rules include guidance on using projections in all the SEC's filings, enhancing the quality of information available to investors. The SEC has outlined a timeline for effectively implementing the rules to ensure widespread compliance.
