One of the most popular ways to take a private company public in the last 12 months has been through a SPAC merger. Among the benefits of choosing a SPAC over a traditional IPO are a quicker route to market and the ability to share forward-looking guidance to investors.
The Securities and Exchange Commission (SEC) is now weighing changes that could make SPACs less attractive to private companies.
What Happened: The SEC is contemplating changes to how SPACs operate going forward, according to sources at Reuters.
“SPACs are listed shell companies that raise funds to acquire a private company and take it public, allowing targets to sidestep the more onerous regulatory checks of an initial public offering,” stated the Reuters’ article.
One of the big concerns is how SPACs can issue forward guidance five or more years out. Some companies that have completed their SPAC mergers have revised guidance down from original estimates.
This has led to calls that the guidance could be misleading to potential investors at the time of the SPAC deal.
“The SEC is considering guidance aimed at clarifying when a key liability protection for such forward-looking statements applies to SPACs,” sources told Reuters.
Related Link: Green Eggs & SPAC: What Could Tweet From Elon Musk Mean?
Why It’s Important: The potential change from the SEC comes after the regulator recently announced plans to change how SPAC warrants are calculated for the companies. The change has caused a backlog in new SPAC offerings with no SPAC IPOs taking place last week.
Companies that have announced SPAC deals are also restating financials and projections based on the reclassification to get deals processed smoothly.
The SEC has not substantively amended its definition of what a blank check company (another name for a SPAC) is since the passage of the Private Securities Litigation Reform Act of 1995 that provided a “safe harbor” for forward-looking statements.
Along with the SEC, Tesla Inc (NASDAQ: (TSLA)) CEO Elon Musk is among those calling for changes to the SPAC process. Musk has been vocal against SPACs for some time, which could be because so many competitors to both Tesla and SpaceX are choosing this route to bring their companies public.
“Strange that they aren’t taking more action on some of the SPACs,” Musk tweeted in response to questions about the SEC.
Musk said the FCC, NHTSA and FAA are generally fair but sometimes there are disagreements. The same was said by Musk about the SEC.
“They have an important role to play in protecting the public from getting swindled, but are sometimes too close to Wall St hedge funds imo,” he noted in the Tweet.
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