SPAC Act Introduced in the Senate

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Mayer Brown Free Writings + Perspectives

[author: Carlos Juarez]

On April 29, 2021, Sen. John Kennedy (R) introduced the Sponsor Promote and Compensation (SPAC) Act (the “bill”), which would require the SEC to issue rules requiring enhanced disclosures for blank check companies, including SPACs, during the IPO and pre-merger stages.

Specifically, the SPAC Act calls for rules requiring the disclosure of:

  1. the amount of cash per share expected to be held by the blank check company immediately prior to the merger under various redemption scenarios;
  2. any side payments or agreements to pay sponsors, blank check company investors, or private investors in public equity for their participation in the merger, including any rights or warrants to be issued post-merger and the dilutive impact of those rights or warrants; and
  3. any fees or other payments to the sponsor, underwriter, and any other party, including the dilutive impact of any warrant that remains outstanding after blank check company investors redeem shares pre-merger.

Further, the bill would require the SEC’s rules provide for more explicit disclosure for the benefit of retail investors. The bill would compel the SEC to take action within 120 days of the bill’s passage.

The introduction of the SPAC Act follows an increased regulatory scrutiny surrounding the IPO alternatives, which has included the SEC’s Investor Alert cautioning investors against celebrity-sponsored SPACs, the SEC Staff’s statement on accounting and reporting considerations for warrants issued by SPACs, and additional SEC Staff statements concerning SPACs.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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