SPACs are blank-check shell companies only formed for the purpose of helping other companies go public, avoiding the usual initial public offering (IPO) process.
The SEC is worried SPACs are putting investors at risk and could be looking at limiting SPAC growth projections as well as clarifying when SPACs qualify for some legal protections, according to the report. The new restrictions, if they end up going through in any form, could hamper the SPAC deal frenzy being seen as of late.
The SPAC market is already somewhat losing steam, with the SEC suggesting earlier in the month that warrants issued by SPACs should be considered liabilities rather than equity instruments, the report stated. The new guidelines, if passed, might further compound on the difficulties.
There has been a record amount of money raised by SPACs at $100 billion this year. And the value of SPAC mergers and acquisitions has hit a record high of $263 billion, according to the report. Some of the luminary names going public via SPAC include sports betting platform DraftKings, truck maker Nikola and Playboy owner PLBY Group.
The surge in spending and activity has drawn the watchful eye of the SEC though, the report stated. One of the main SEC concerns has been earnings growth projections, with the projections being important for investors, particularly when the target is a less profitable or newer startup. Investor advocates say the projections are often “wildly optimistic or misleading,” though.
Earlier this month, a PYMNTS SPAC Tracker listed 10 SPAC deals in April as opposed to 109 in March. But a slowdown might not be imminent as software companies and firms acting as “digital disruptors” are still gaining favor with investors.
As of April 23, the tracker reported that payment-related IPO plans were at 12 listings while banking stood at 17.