The US Securities and Exchange Commission has adopted final rules regulating the initial public offerings and business combinations of special purpose acquisition companies. The final rules were passed in a three-two vote nearly two years after the proposed rules were announced. Although the SPAC market has seen changes since the announcement of the proposed rules, the final rules largely reflect the SEC’s proposals from March 2022.
Notable deviations from the SEC’s original proposal include the decision not to create a new rule 140a under the Securities Act and declining to adopt a safe harbor under the Investment Company Act for certain SPACs. Additionally, the final rules remove a requirement for SPACs to disclose whether they reasonably believe their business combination and related financing transactions are fair or unfair to unaffiliated security holders.
The final rules will be effective 125 days after their publication in the Federal Register. The rules add new disclosure items and create disclosure requirements for SPAC IPOs and business combinations as well as align financial reporting requirements for SPACs’ business combinations with traditional IPOs.
The SEC’s guidance also addresses the liability of SPAC IPO underwriters, and the determination that SPACs may be subject to registration as investment companies under the Investment Company Act in certain circumstances. Additionally, target companies in a SPAC’s business combination will be required to sign Securities Act registration statements and may be subject to Exchange Act reporting requirements until the termination or suspension of such obligations.
It is anticipated that the final rules will not create significant market disruption, but will likely lead to further discussions surrounding liability exposures for SPACs and their participants. The guidance provided by the SEC, especially relating to underwriter liability and the status of SPACs under the Investment Company Act, will have implications for the SPAC market and the individuals and entities involved. The market is expected to evolve in response to these new regulatory requirements.