SEC Adopts New Rules for SPACs | Practical Law

SEC Adopts New Rules for SPACs | Practical Law

The SEC adopted final rules intended to enhance disclosures and investor protections in initial public offerings (IPOs) by special purpose acquisition companies (SPACs), as well as in the subsequent business combination transactions between the SPACs and target companies (de-SPAC transactions).

SEC Adopts New Rules for SPACs

Practical Law Legal Update w-042-0785 (Approx. 5 pages)

SEC Adopts New Rules for SPACs

by Practical Law Corporate & Securities
Published on 25 Jan 2024USA (National/Federal)
The SEC adopted final rules intended to enhance disclosures and investor protections in initial public offerings (IPOs) by special purpose acquisition companies (SPACs), as well as in the subsequent business combination transactions between the SPACs and target companies (de-SPAC transactions).
Update: On February 26, 2024, the final rules were published in the Federal Register. They will become effective July 1, 2024. Compliance with the new and amended rules will be required upon effectiveness, except for the structured data requirement. The compliance date for the structured data requirement is June 30, 2025.
On January 24, 2024, the SEC adopted new and amended rules to enhance the disclosure requirements in initial public offerings (IPOs) by special purpose acquisition companies (SPACs) and the business combination transactions between the SPACs and target companies (de-SPAC transactions). The rule changes are intended to more closely align the disclosures and investor protections in de-SPAC transactions, as well as other business combinations involving shell companies, to those in traditional IPOs.
Specifically, the SEC adopted new Subpart 1600 of Regulation S-K, which will provide particular disclosure requirements for SPAC IPOs and de-SPAC transactions. The disclosure requirements in Subpart 1600 include, among other things:
  • More detailed disclosures about the SPAC sponsor, compensation paid to the sponsor, and potential conflicts of interest (Item 1603).
  • Specifying disclosures that must be on the prospectus outside front cover page and in the prospectus summary of registration statements filed for SPAC IPOs (Item 1602) and de-SPAC transactions (Item 1604). Items 1602 and 1604 also require tabular disclosure showing the nature and amounts of each source of dilution and, outside of the table, material potential sources of future dilution.
  • For de-SPAC transactions, disclosure of certain information regarding:
    • the background, material terms, and effects of the transaction (Item 1605);
    • any legally required determinations made by the SPAC's board of directors whether the de-SPAC transaction is advisable and in the best interests of the SPAC and its shareholders (Item 1606);
    • any outside report, opinion, or third-party appraisal received by the SPAC or SPAC sponsor (Item 1607), including the filing of such documents as exhibits; and
    • any projections relating to the SPAC or target company disclosed in filings in connection with the de-SPAC transactions (Item 1609) (see also the removal of the safe harbor for forward-looking statements below).
  • Structured data requirements (Item 1610).
Additional rule amendments adopted to align procedural protections in de-SPAC transactions to those in traditional IPOs include:
The SEC also adopted other rule amendments and provided guidance on issues addressing:
  • The use of projections in all SEC filings, in addition to the new disclosure requirements specific to de-SPAC transactions in Item 1609.
  • Securities Act liability and financial reporting requirements in connection with business combinations of shell companies, regardless of whether the shell company is a SPAC as defined in Item 1601.
  • Statutory underwriter status in de-SPAC transactions.
  • Considerations for SPACs when analyzing their status under the Investment Company Act.
The final rules will become effective 125 days after publication in the Federal Register. Compliance with the rules will be required upon effectiveness, except for the structured data requirement in Item 1610 of Regulation S-K. The compliance date for the structured data requirement will be 490 days after publication in the Federal Register.
For more information on SPACs and de-SPAC transactions, see Practice Note, Understanding De-SPAC Transactions.