What’s Behind and Ahead for the SPAC Boom

Fenwick corporate partner Mark Stevens was quoted in The Deal about the growing wave of SPAC initial public offerings in 2020.

Citing the differences between a traditional IPO and a SPAC, Stevens said, “Companies are using the SPAC process to disclose projections that they can’t disclose in an IPO.”

“In a normal IPO, the issuer doesn’t have legal protection for using projections. If a company has some unpredictability or wants to tell a story about projections that show a change in direction, it can tell that story much more easily via a SPAC than an IPO,” he added, a factor that helps explain why so many electric vehicle companies have opted for de-SPACs.

Stevens also noted there is a Securities and Exchange Commission safe harbor for forward-looking statements that applies in a SPAC transaction but not in an IPO and "therefore a strong belief that litigation and liability risk for projections is much lower in a SPAC than in an IPO." (For more insight on litigation considerations related to financial projections in SPAC transactions, see Fenwick’s recent article.)

According to Stevens, a SPAC deal also appeals to companies valued between $500 million and $1 billion that might have trouble completing an IPO but still have a compelling need to be publicly held. “Sometimes going public is the right answer, either because shareholders or employees need liquidity or the company needs a public currency to do acquisitions,” he added.

The full article is available on The Deal.