On March 31, 2022, the SEC finished an active month of rulemaking by proposing new rules for SPACs. (March also included proposed rules dealing with cybersecurity and climate change.) The SPAC proposed rules affect all phases of the SPAC life cycle and would:
Add new Regulation S-K Items to specify disclosures required in a SPAC’s IPO. The proposed disclosures are similar to those addressed in SEC comment letters, CorpFin Disclosure Guidance Topic No. 11 and this Statement by Acting Chief Accountant Paul Munter.
Require new disclosures for de-SPACing transactions, including disclosures about the fairness of a de-SPACing transaction and any related financing for SPAC shareholders.
Create a rule that a business combination between a public shell company and an operating company is a sale of securities to the public shell company’s shareholders. This would likely require some de-SPACing transactions to be registered on Form S-4 or F-4 rather than simply using a proxy statement.
Change provisions in the 1933 Securities Act to provide that the private company in a de-SPACing transaction would be a “co-registrant.” This could raise liability concerns for the target and its directors.
Change the financial statement requirements for private operating companies in a transaction with a SPAC or other shell company to better align them with the financial statement requirements for an IPO.
Amend the SEC’s requirements in S-K Item 10 about the use of projections to provide information to help investors better assess the basis and reliability of projections.
Change the definition of a blank check company to include SPACs. Because blank check companies cannot use the 1995 Private Securities Litigation Reform Act safe harbors for forward looking statements, SPACs would not be able to rely on these safe harbors.
Provide that underwriters of a SPAC’s IPO that are subsequently actively involved in the SPACs search for a merger partner would be considered underwriters in the related de-SPACing transaction.
Require a re-assessment of smaller reporting company status within four days of a de-SPACing transaction.
Clarify the status of SPACs as investment companies, by providing a new safe harbor from investment company status.
If you would like to learn more about the proposed rules they will be discussed in depth at SECI’s “The SPAC Life Cycle: Business, Legal and Accounting Considerations Forum,” on April 19, 2022. In addition, we are planning a One-Hour Briefing on this topic later in April.
As always, your thoughts and comments are welcome!