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:

1. Sponsor & Affiliate Disclosures – Compensation, conflicts, and redemption terms.
2. Underwriter Status – Clarifying roles in de-SPAC deals.
3. Liability for Target Companies – Holding officers accountable for misstatements.
4. De-SPAC as a Securities Sale – Strengthening investor protections.
5. 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.