SEC proposes more transparency for SPACs

Rules would ramp up investor disclosures, spur status changes

SEC Chair Gary Gensler (Getty Images, iStock/Photo Illustration by Steven Dilakian for The Real Deal)
SEC Chair Gary Gensler (Getty Images, iStock/Photo Illustration by Steven Dilakian for The Real Deal)

The Securities and Exchange Commission is looking to up the scrutiny on special purpose acquisition companies in another setback for a struggling market.

The SEC on Wednesday proposed rules that would require SPACs to provide more investor disclosures with information on ownership of the public shell companies, along with performance forecasts. Some SPACs may also have to register as investment companies, forcing them to face stricter rules.

The proposal puts advisers of the blank-check firms under harsh scrutiny, the New York Times noted, as they would face increased liability surrounding the lofty financial projections often stemming from these companies. Banks may also turn away from SPACs or deal with them less often.

Only one commissioner voted against the proposal, which was approved on party lines. The dissenter, Republican Hester Peirce, said the proposal was “designed to damn, diminish and discourage SPACs,” saying the typical SPAC likely wouldn’t be able to meet the updated parameters, according to the Times.

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Interest in the SPAC market has already diminished from a year ago. According to SPAC Research data reported by the Times, more than 600 SPACs combined to raise about $160 billion in 2021. In the first quarter of 2022, only about 50 SPACs have sprouted up, raising $10 billion.

The performance of SPACs has been a major problem for the market. The Times reported a fund tracking hundreds of the companies lost about half of its value since early 2021.

Proptech SPACs are also losing their shine. Opendoor saw its valuation more than triple to $18 billion after a SPAC merger, but the iBuyer has been trading well below its February 2021 peak. Other proptech companies struggling since their SPAC mergers include smart-home startup SmartRent, keyless-entry company Latch and insurance technology companies Doma and Hippo.

Still, some companies remain optimistic about jumping into the SPAC sea. Singapore-based PropertyGuru earlier this month debuted on the New York Stock Exchange after shareholders approved a SPAC merger with blank-check company Bridgetown 2.

A 60-day comment period on the potential SPAC rules is required before further action can be enacted.

[NYT] — Holden Walter-Warner