Death knell over SPAC?

- Advertisement -

It’s a tough day for special purpose acquisition companies, or SPACs, which have already fallen out of favor after about 18 months in the spotlight.

- Advertisement -

Senator Elizabeth Warren is planning a bill aimed at the SPAC industry, her office announced today. called “SPAC Liability Act of 2022“, the bill would expand the legal liability of parties involved in SPAC deals, close loopholes that SPACs have “long used to make inflated predictions”, and lock out investors sponsoring the deal longer.

- Advertisement -

Even if the bill never passes, the SEC today ends a 60-day public comment period on a number of its own proposed guidelines for SPACespecially with regard to disclosure, marketing practices and third party oversight.

As TechCrunch notes in weekend image with an astonishing number of SPACs for electric vehicles to flounder, provided the SEC rules are approved, the barrier to entry for listing via SPACs will rise to the same level as companies opting for a more traditional IPO listing process, including to raise to liability of banks associated with SPACs for misstatements related to the merger. (To protect itself, Goldman Sachs has already stated that never ever working with most of the SPACs that have been published, and suspending work on the new release of the SPAC.)

- Advertisement -

None of these initiatives will suddenly stop SPAC. They had already begun to lose momentum last year when the SEC warned in March 2021 that SPACs were incorrectly accounting for investor incentives called warrants. Indeed, while 247 SPACs were closed in 2020, most of the SPACs raised last year (613!) came together in the first half of the year before the SEC signaled it plans to do more on the regulatory front.

Now these many blanche companies need to find suitable targets in a market that has turned bearish, and the clock is ticking. Given that candidate companies typically have to find and merge with a target company within 24 months of investors funding the SPAC, if these hundreds of companies fail to complete the merger with candidate companies within the first half of next year, they either have to wind down (which could mean millions of lost dollars for SPAC backers) or seek shareholder approval for an extension.

It’s even worse than it looks. According to the data, the time between the announcement of the deal and the moment when the SEC has time to consider it takes up to five months. SPACInsider founder Christy Marvin, even SPAC, which closes the deal tomorrow, won’t be able to ask their shareholders to vote for it until around November.

In fact, while lawmakers and regulators seem late to the party, they will no doubt be on the lookout for unnatural moves as SPAC sponsors do everything in their power to cross the finish line.

A number of SPAC backers have already started asking their shareholders for more time to close the deal, some of them apparently hoping that investors can love the once obscure financial instruments again. Magnum Opus, the SPAC that planned to list Forbes, has filed two deadline extensions this year after announcing the merger last August. He needed to get shareholder approval once more for an extension to keep the deal; instead, according to the New York Times, Forbes has just cleared the deal.

More should also happen: SPACs that announce targeted companies outside of their area of ​​expertise, and more buyouts that leave SPACs with far less cash for their mergers.

Surf Air Mobility is a perfect example of both. A nearly 11-year-old Los Angeles-based electric aviation and air transportation company operating on a membership model recently announced it will go public through a merger with SPAC Tuscan Holdings Corporation II, which merged in 2019.

Considering Tuscan was a bit slow on SPAC, he had to ask shareholders approve the extension. He won their approval, although many supporters bought back their shares, reducing the size of the pool of capital that Tuscany had to work with. With less capital to operate, Surf Air has essentially found additional funding for itself.

Initially, Tuscan aimed, but was not limited to, acquiring a cannabis company rather than a travel company. There is nothing legally wrong with that, emphasizes Marvin, who also notes that this is not the first SPAC to shop well outside of its preferred area of ​​interest.

However, this could be another reason to give investors a pause when SPAC backers need to be convinced.

Take an earlier SPAC, Hunter Maritime, which merged in 2016 with the help of Morgan Stanley to acquire one or more operating businesses in the international maritime industry. original prospectus. Three years later, he acquired the China-based wealth manager instead, a rebrand.

Today, the combined NCF Wealth Holdings is no longer a company.

“Many SPACs will be liquidated over the next two years,” says Matthew Kennedy, senior IPO strategist at Renaissance Capital. “I think shareholders are just looking at [the performance of companies taken public via SPACs] and saying “why would I keep it if I have a four out of five chance of losing money?”

Credit: /

- Advertisement -

Stay on top - Get the daily news in your inbox

DMCA / Correction Notice

Recent Articles

Related Stories

Stay on top - Get the daily news in your inbox