New guidance from the Securities and Exchange Commission (SEC) has special purpose acquisition companies (SPACs) scrambling to add explanatory information to filing statements, Bloomberg reported on Friday (April 23).
Social Capital Hedosophia Holdings Corp, a SPAC from venture capitalist investor Chamath Palihapitiya, is one of the filings this week that included the new SEC accounting guidance.
Vertiv Holdings, FG New America Acquisition Corp.,Altimar Acquisition Corp. and Mallard Acquisition Corp. all tweaked messaging to include a statement that investors should not rely on previously audited financial statements, Bloomberg reported.
The SEC guidance calls for reclassification of SPAC warrants as liabilities instead of equity. Warrants give investors the opportunity to buy shares at a later date for a specified price. The guidance isn’t law and doesn’t affect operations in and of itself. However, if the guidance does become law, companies will have to restate their financial results to properly account for warrants.
The SEC said at the end of March that a crackdown on SPACs was imminent. SPACs, also called blank-check companies, are structured to offer startups a way to go public with less regulatory oversight than an initial public offering (IPO).
Over 500 pre-deal blank check deals are trading on U.S. exchanges and some 58 companies at a minimum have merged with SPACs. Most have had to take a look at previous financial statements to evaluate if the accounting differences warranted financial restatements.
Matthew Tuttle, chief investment officer of Tuttle Capital Management, told Bloomberg the SEC guidance is a “pain in the butt” but sees it as just a “speed bump.”
“The full intent of the SEC might’ve been to just slow things down a bit,” he said, per the news outlet. Tuttle also runs a SPAC ETF.
The SPAC boom in the first quarter of this year has had $1.3 trillion in deals on the table, more than any other first quarter since 1980. In the first three months of this year, SPACs notched over $83.4 billion more than in all of 2020.
On Tuesday (April 20), London hedge fund Marshall Wace warned investors that SPACs could end up delivering less-than-optimal returns. Of the blank check firms that started trading in March, 14 of the 15 closed $10 below IPO prices.