On December 17, 2021, Bill Haddad was quoted in Law360 on the increased regulatory scrutiny of special purpose acquisition companies (SPACs). Also called blank-check companies, SPACs are shells that raise money through an IPO in order to acquire and take public a private company.
According to the article, some acquisition targets, especially early-stage companies with little track record, find this route a more certain path to public markets than a traditional initial public offering (IPO). SPAC offerings took off in 2020 and carried that momentum through early 2021, generating an explosive first quarter that saw 297 such vehicles complete IPOs between January and March, or more than three a day.
The torrid pace finally cooled in the spring as the U.S. Securities and Exchange Commission (SEC) stepped up scrutiny, concerned that companies going public through SPACs may be evading investor protections associated with traditional IPOs. The SEC began examining how SPAC acquisition targets use financial projections, a practice avoided in typical IPOs, to sell themselves to potential investors.
Regulators have also repeatedly scrutinized whether warrants — which provide SPAC investors rights to additional shares — were being accounted for correctly, prompting some companies to restate their financial reports. And the SEC has also called for clearer disclosure about SPAC transactions, concerned that these vehicles favor insiders at the expense of retail investors.
These regulatory interventions had the cumulative effect of slowing down a once frenetic market. "The concern with SPACs, from a regulatory point of view, is are they getting rushed?" said Haddad.
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