SEC Finalizes SPAC Transaction Rules

On January 24, the Securities and Exchange Commission (SEC) voted 3-2 to adopt final rules concerning SPAC initial public offerings and de-SPAC transactions. The final rule will: 

  • Enhance disclosure requirements applicable to projections;
  • Expanded conflicts of interest disclosure;
  • Enhanced non-financial target company disclosures;
  • Expand the potential liability for SPACs, target companies, and the directors and officers of SPACs and target companies; and
  • Impose Securities Act liability and financial reporting requirements in connection with business combinations of shell companies, regardless of whether the shell company is a SPAC.

The final rule tracked very closely with the proposal, except for changes made with regard to SPAC IPO underwriters’ and a safe harbor for SPACs under the Investment Company Act of 1940. Instead, the Commission opted to provide guidance regarding the particular facts and circumstances parties should consider in making the “underwriter” and “investment company” determinations. In its guidance on determinations regarding investment company status, the Commission highlighted the following factors:

  • Composition of the SPAC’s assets and income;
  • SPAC management team activities;
  • Duration the SPAC operates prior to entering into a business combination agreement with a target company; and
  • Whether the SPAC holds itself out as an option for investors to gain exposure to its underlying portfolio of securities.

In his statement of support, Commission Chair Gary Gensler commented, “Today’s adoption will help ensure that the rules for SPACs are substantially aligned with those of traditional IPOs, enhancing investor protection through three areas: disclosure, use of projections, as well as issuer obligations.” Dissenting Commissioners, Hester Peirce and Mark Uyeda, advocated for retaining differences between SPACs and traditional IPOs to provide target companies with greater alternatives when determining the optimal path to become a public company. The rule most likely will take effect in early June 2024.

Click here to read the Commission’s final rule on SPAC transactions.
Click here to read Chair Gensler’s remarks on the final rule.
Click here to read a Davis Polk client alert on the final rule.