D spac transaction11/29/2023 ![]() While challenges brought before the conclusion of a transaction can be remedied by amending the proxy statement (see Wheby v. These disclosures are governed by section 14(a) of the Securities Act of 1934. The De-SPAC proxy statement wherein disclosures are made to the SPAC shareholders to enable them to vote on the proposed acquisition also provides a basis for litigation if shareholders feel that they statements are inadequate or inaccurate. While less burdensome than a traditional IPO process, SPACs still must make disclosures to the SEC in the form of a registration statement wherein SPAC management is subjected to strict liability for misstatements and omissions under the Securities Act of 1933, providing one potential source of litigation. As has been pointed out, this may incentivize SPAC management to propose less attractive deals to SPAC shareholders towards the end of the lifespan of the SPAC. This incentivization comes from their compensation structure in which their equity only vests if the SPAC makes an acquisition. Another source of risk is the actions of the management and officers of the SPAC who may be incentivized to close on transactions that will not provide significant returns for original SPAC investors. One source of risk is disclosures made during the SPAC IPO and in proxy statements ahead of the vote on the de-SPAC transaction. There are two general areas to risk as these companies look to de-SPAC. With 219 SPACs raised in 2020 in a white-hot market, one has to wonder what comes next. Some of the highest performing SPACs in 2020 returned between 97% and 171% for investors. The added benefits with SPACs are that the SPAC has vetted management who are involved with the SPAC’s IPO process and that the management is financially incentivized to acquire a prime target, usually only earning a return if the SPAC goes onto make an acquisition before its timeline, usually two years, runs out. The target is not subjected to intense SEC review, they require less legal preparation, which reduces indirect IPO costs, the relative speed afforded by the nature of the transaction makes them less subject to timing risks should market conditions turn, and they require less time commitment from the private firm’s management team as they do not have to engage in typical IPO prerequisites such as road shows. SPACs have all the traditional benefits of a reverse merger. In fact, SPACs are designed to operate as a form of reverse merger where a private company, the target, is merged into the SPAC, a public shell company, resulting in the private company becoming public. Why the frenzied demand? The benefits of SPACs are similar to those of a reverse merger. As of mid-December 2020, SPACs had raised $73 Billion for the year and that figure outpaced money raised by traditional IPOs by $6 billion according to Goldman Sachs. ![]() ![]() SPACs were hugely popular in the runup to the great recession before seeing a drop-off in activity, but if recent years are to be taken as indicative, SPACs are enjoying a massive resurgence. They’re modeled after the blank check companies first seen in the 1980s. The Special Purpose Acquisition Company ("SPAC") is a shell company used to raise money for the purpose of acquiring or merging with another company.
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