– SEC is tightening the rules on SPACs, potentially ending the era of grandiose claims and high-flying projections by companies.
– The removal of the safe harbor provision may reshape the SPAC market, discouraging overly optimistic forecasts and increasing disclosure requirements.
Well, well, well. It appears that the party might be over for the special purpose acquisition companies (SPACs), those blank-check vehicles that popped up like mushrooms in a damp cellar during the pandemic. You see, startups couldn’t resist the opportunity to make grandiose claims about their prospects without much fear of legal backlash. However, the US Securities and Exchange Commission (SEC) is now sharpening its pencils and tightening the rules on SPACs. This may put an end to the sweet dreams and high-flying projections that companies have been freely tossing around like confetti at a New Year’s Eve party.
Never one to shy away from a good example, let’s take a gander at hydrogen-fueled vehicle maker, Hyzon Motors Inc. This ambitious company initially promised to produce over 3,000 vehicles by 2023. However, they had to scale down their ambitions, a lot. Eventually, they admitted that they might only churn out a paltry 20 vehicles. That’s quite a drop, isn’t it? It’s as if they jumped off a cliff and realized mid-air that they forgot their parachute.
And then there’s MSP Recovery Inc, trading as LifeWallet, a health-litigation firm with an equally optimistic vision. They had projected a net income of a whopping $630 million for 2023. Unfortunately, their bank balance tells a different story. They ended up losing over $600 million in just nine months, leading up to September. It seems their fancy forecasts were as accurate as a horoscope in a tabloid newspaper.
Now, here comes the SEC, like a stern school principal, ready to enforce stricter rules and increased liability for these SPACs. They aim to protect investors, although that might have been helpful before companies like Nikola Corp, which merged with a SPAC, started warning about their weak balance sheets and struggles to meet production expectations.
But don’t get it twisted, not all SPAC deals have been disastrous. Some have been quite successful, like DraftKings Inc, which has seen its shares nearly quadruple. However, the looming increase in disclosure requirements and the potential for increased liability might dampen the enthusiasm for SPACs, which have seen a notable decline in the number of companies going public through this method.
Pushing up the glasses on its nose, the SEC’s decision to remove the safe harbor provision for SPACs may discourage companies from making overly optimistic forecasts that they cannot reasonably support. This could reshape the landscape of the SPAC market, much like a bulldozer through a sand castle. But hey, at least there won’t be any more overly ambitious or downright unusual forecasts, like that of TMC, the metals company, which provided estimates for 2046, a roughly 25-year lookahead. Seriously, who does that?
So, as we step into this brave new world of increased disclosure and accountability, will the SPAC market adapt or will it wither on the vine? Only time will tell. In the meantime, let’s sit back and enjoy the show. Popcorn, anyone?