Demise of largest SPAC ever comes amid market and regulatory headwinds
Chair of Herrick's Corporate Department, Morris DeFeo, was quoted in MarketWatch in an article discussing the liquidation of a $4 billion special purpose acquisition company (SPAC), marking "the largest payback in the history of the asset class." The article notes that the "once-hot deal type" is facing increased regulatory scrutiny by the U.S. Securities and Exchange Commission and bear market conditions. The recent decision to redeem all outstanding shares of Class A common stock was reportedly due to the ability to "find a suitable or executable transaction for the SPAC."
“Combined with the enhanced regulatory and political scrutiny of SPACs, particularly as measured against conventional IPOs [initial public offerings], SPACs that seized the opportunity to raise capital early on have faced growing headwinds and dwindling time,” said DeFeo.
The article notes that with a backlog of deals, and the stock market indexes moving to bear market territory, fewer SPACs have gone public. "Speaking to the regulatory pressures in both current and proposed rules by the SEC, DeFeo said the SPAC market faces challenges for potential acquirers.
According to DeFeo, “[a]ctual and proposed SEC regulations focusing on SPACs…continue to place greater pressure on SPACs and their advisors to diligence and value potential acquisition targets more thoroughly and cautiously.”
"SPAC merger deals have not generally been exposed to underwriter liability," DeFeo elaborated. "The SEC will try to change that by saying that bankers have to take a look at the two transactions—both the public offering and the de SPAC—as one deal."
"This will require bankers and other participants to do a deeper dive in terms of diligence and valuation, and will therefore demand more time, resources and greater expense, he said."
"While these and other changes may steepen the regulatory slope for SPACs, the deal type will likely remain part of the overall deal universe, he said “I don’t think the SPAC genie will be completely shut up in its bottle,” DeFeo said. “However, it makes sense for investment bankers to pause and look at their exposure and reassess deals and decide how they want to allocate resources.”