CorpFin Hot Disclosure Topic – Special Purpose Acquisition Companies
By George Wilson
Special Purpose Acquisition Companies, or SPACs, have become a go-to vehicle for raising capital and becoming publicly traded. This exponential growth has created a multitude of disclosure issues. The 1933 Securities Act transaction disclosure requirements do not generally apply when a SPAC acquires an operating company. Disclosure requirements for unique SPAC issues, including the economic stake that sponsors have in the SPAC and the process the SPAC uses to set the subsequent acquisition price, are frequently unclear.
On December 22, 2020, CorpFin issued Disclosure Guidance Topic 11, Special Purpose Acquisition Companies, to present their views about disclosure considerations for SPAC IPO and business combination transactions.
Disclosure considerations discussed for a SPAC IPO include:
- Possible conflicts of interest for the SPAC sponsors,
- Incentives that exist or may arise for sponsors to complete a business combination,
- Compensation arrangements with underwriters, and
- How the terms of securities held by sponsors may differ from those of the public shareholders.
Disclosure considerations surrounding SPAC subsequent business combination transactions include:
- Terms of any additional financing,
- How the target company was identified and evaluated, and
- Services and fees related to underwriters.
The Disclosure Guidance Topic provides more details in each of these areas. Additionally, this is clearly not an all-inclusive list. It provides the core principles that SPACs should consider as they provide disclosures to investors.
As always, your thoughts and comments are welcome!