Investment Banks’ Retreat Amplifies SPAC Market Woes
Morris F. DeFeo, chair of Herrick's Corporate Department, spoke to Law360 about the withdrawal of investment banks from deals involving special purposes acquisition companies (SPACs). The article states that, "Goldman Sachs Group Inc. said Monday it was reducing involvement in SPACs... Reports followed that Citigroup Inc. and Bank of America Corp. are, to varying degrees, curbing their exposure to SPACs[.]"
SPACs were initially popular as an IPO alternative, but have since fallen out of favor with many investors. The article noted tightening government regulations, weak post merger returns, market saturation and underwriters' fees as reasons for the decline in SPAC activity.
The article outlined that the market drop coincides the SEC's recent proposal, which "seeks to increase liability for various parties involved with SPACs on the premise that intermediaries need stronger incentives to assure that blank-check companies pursue quality acquisitions, commonly called 'de-SPACs... The SEC's proposal aims to put SPACs on a similar regulatory field as traditional IPOs, although some question whether the agency is being overly broad in how it defines an underwriter." The agency is accepting public comments on its proposal and may take action on a final version later this year.
Morris reflected on how he has fielded calls from clients nervous about the effects of Goldman pulling back and related market turmoil. The article stated that he "cautioned against overstating concerns, noting SPACs have gone through various iterations over the years and have demonstrated market resiliency."
Morris explained, "If there's a significant amount of money to be made in the market, people will find a way to intelligently proceed with deals, but just do so in ways that are more responsive to the SEC's regulatory perspective[.]"
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