On March 30, 2022, the SEC, in a 3-1 vote by its commissioners divided along political lines, approved the issuance of proposed rules regarding Special Purpose Acquisition Companies (SPACs).
SPACs first began to emerge in the 1990s as an alternative to blank check companies regulated under the Securities Act. These have recently risen in popularity and have captured the attention of investors and financial media. A SPAC is typically a shell company that is formed for the single purpose of raising capital through an Initial Public Offering (IPO) to either merge or acquire one or more private operating companies.
The proposed rules respond to the SEC’s increased attention on SPACs. In 2021, these companies completed around 600 IPOs and facilitated the public market debut of more than 200 companies through SPAC transactions. Gary Gensler, the SEC Chairman, has stated that the main purpose of the proposed rules is to strengthen disclosures, marketing standards, and gatekeeper and issuer obligations by market participants in SPACs, helping ensure that investors in these vehicles get protections similar to those when investing in traditional IPOs.”
Some of the changes the proposed rules seek to impose are, (1) a mandatory requirement that a fairness opinion be obtained in connection with a De-SPAC Transaction, as well as a mandatory requirement that any such fairness opinion solely addresses the fairness from a financial point of view solely for the SPACs, unaffiliated security holders, (2) a requirement the De-SPAC Target to be a co-registrant to the Merger Registration Statement, (3) underwriter liability in De-SPAC Transactions, and (4) elimination of the PSLRA safe harbor for forward-looking statements disseminated by the SOAC in connection with a De-SPAC Transaction inapplicable.
On June 17, 2022, the Federal Regulation of Securities Committee of the Business Law Section of the American Bar Association submitted their comments with respect to the proposed rules. These comments were drafted by over 50 experienced securities law practitioners. For the most part, their comments are in support of the enhanced disclosure requirements contained in the proposed rules, but they stated their strong opposition to the Commission’s proposal to require a fair opinion in connection with a De-SPAC Transaction. Another clear opposition is to the proposed requirement that the DE-SPAC Target be a co-registrant to the Merger Registration Statement. The ABA recommended that the SEC delay the effectiveness of any rules or amendments for at least three months after approval of the final rules.