The expansive proposals would impact all stages of the SPAC lifecycle and impose additional disclosure requirements related to sponsor compensation, conflicts of interests, dilution and the fairness of the business combination. The proposals would also introduce new underwriting requirements, remove a safe harbor for projections, codify and clarify financial reporting requirements for target entities and provide certain conditions allowing for an exemption from registration under the Investment Company Act of 1940.
Enhanced disclosures about sponsors, conflicts, dilution and fairnes
The proposed rules would require enhanced disclosures in filings relating to SPAC IPOs and the subsequent de-SPAC transaction. The same would be true for filings of shell companies that are not considered SPACs.
These proposed disclosure enhancements (required to be tagged in Inline XBRL format) would include:
Alignment of de-SPAC transactions with IPOs
In an effort to align the existing rules and disclosure requirements governing de-SPAC transactions with those of a traditional IPO, the proposals would result in the following:
Use of projections
Financial projections are a common feature in both SPAC-related and traditional IPO filings. In an effort to drive greater transparency in the use of financial projections, the proposals would require the following:
Determination of a SPAC as an investment company
The SEC proposed a safe harbor that is designed to permit a SPAC to avoid the need to determine its status under the Investment Company Act if it complies with certain conditions and disclosures, therefore avoiding the potential need to register as an investment company. In turn, the SPAC would have more certainty regarding its status under the Investment Company Act.
The conditions and disclosures include the following: