SEC Attacks SPACs: What New Merger Rules Mean For Investors, Public Offerings

The U.S. Securities and Exchange Commission (SEC) adopted new rules that change how SPACs will communicate their offerings to the public.

What Happened: SPACs, or special-purpose acquisition companies, were a popular investment method. They proved to be a once-popular way for companies to go public but often drew the attention of regulators.

Many companies that went public via SPAC trading have since delisted or gone bankrupt. Now, the SEC has decided to enact several new rules.

The SEC, led by SEC Chairman Gary Gensler, voted 3-2 Wednesday on new rules. They’re expected to be enacted within five months, according to the Wall Street Journal.

Among the new rule changes are more disclosures from the companies ahead of the offering and executives being held liable for the claims made.

Concerns over dilution for SPAC mergers will be more present in filings. Disclosures and tables should show who owns shares and when they can sell them.

A big difference between SPACs and IPOs was often the forward guidance. SPAC presentations of deal announcements often included revenue and earnings estimates multiple years into the future. In many cases since, those estimates proved to be wildly inaccurate.

Conflicts of interest between sponsors, affiliates and shareholders will also have to be disclosed.

"Whether you are doing a traditional IPO or a SPAC target IPO, SPAC investors are no less deserving of our time-tested investor presentations," Gensler said, according to a Reuters report.

Related Link: Chamath Palihapitiya Says SPACs Were ‘Fueled By A Moment In Time Of Just Enormous Liquidity’: What’s Next For Private Companies?

Why It's Important: Over 800 SPACs raised $246 billion in 2020 and 2021, according to data from SPACInsider cited by the WSJ.

Among the popular sectors that often saw SPAC mergers were sports betting, space, eVTOLs and e-commerce.

Rules to add disclosures and investor protections have been in the works for years. Wednesday's ruling could limit the number of companies that choose to go public via SPAC merger.  

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