SPACs and new SEC disclosure rules
The SEC has introduced new rules (Subpart 1600 of Regulation S-K) to enhance transparency in SPAC IPOs and de-SPAC transactions, aligning them with traditional IPO disclosures. SPACs, which surged in 2020-2021, faced scrutiny due to poor post-merger performance and investor losses. The rules focus on:
- Sponsor & affiliate disclosures – compensation, conflicts and redemption terms.
- Underwriter status – clarifying roles in de-SPAC deals.
- Liability for target companies – holding officers accountable for misstatements.
- De-SPAC as a securities sale – strengthening investor protections.
- Enhanced financial reporting – aligning disclosures with conventional IPOs.
Recommendations for compliance & viability
- Fair valuation – assess post-merger value considering non-redeeming shareholders.
- Redemption transparency – compare redemption value with post-merger share value.
- Simplify structures – eliminate warrants to reduce dilution risks.
- Align sponsor compensation – tie pay to post-merger performance.
- Underwriter incentives – base fees on non-redeemed shares.
- Cost clarity – disclose all merger-related fees.
- Inclusive PIPE funding – involve unaffiliated investors to reduce conflicts.
The new rules aim to balance investor protection with SPAC viability, ensuring fairer deals while maintaining access to public capital.