In recent years, EV startups have been opting for the easy way to go public through SPAC. However, after certain incidents with the companies that went public that way. There are talks going on, about how to change the regulations. It will be known on Tuesday when the US Securities and Exchange Commission announces. The proposed guidelines for SPACs will be considered and evaluated. If approved, the entry path for EV startups will be harder and longer.
These rules expect the process to go public through SPAC to be on par with traditional IPO listing. SEC Chairman Gary Gensler said that the rules will “help ensure that investors in these vehicles get protections similar to those when investing in traditional initial public offerings,”
After the rules are approved, the current investors will also be strengthened. It would be presenting the SPACs by using “overly optimistic language or over-promise future results” to attract investors. Gensler said in March, “Ultimately, I think it’s important to consider the economic drivers of SPACs. Functionally, the SPAC target IPO is being used as an alternative means to conduct an IPO.” The most significant change in these rules would be to have more transparency. This means there should be more disclosure across various areas of the company.
The guidelines also call for gatekeepers such as auditors, lawyers, and underwriters to be held responsible for their work, including assuming liability for the registration statements SPACs must file ahead of a target IPO. Gensler said the changes “provide an essential function to police fraud and ensure the accuracy of disclosure to investors.”
While the proposal winds through the approval process, some players in the market have pressed the pause button. For instance, Goldman Sachs halted its deal-making in May as it waits to see how the new regulations will affect dealmaking, especially if the SEC revokes the so-called safe harbor protections that until now have allowed SPACs to make bullish projections. Credit Suisse and Citigroup have voiced alarm, too.
“I could say I think I’m gonna make a bajillion dollars in 2025 but here are all the reasons why I might not,” said Ramey Layne, capital markets and M&A attorney at Vinson and Elkins. “If you say that there’s a safe harbor, then you can’t be sued for that if it proves to be wrong.”
The SEC’s proposed regulations are “a very big step in the right direction,” said Stanford Law School professor Michael Klausner, especially if SPACs are required to “disclose the extent to which their shareholders’ equity is diluted at the time of the merger.”