The US Securities and Exchange Commission (SEC) today (Wednesday) unveiled a set of rules for Spac companies, in what appears to be a shift in the fight against Spac companies – inactive companies set up to merge an existing company and put it on the back door, without a standard IPO. Signatories, a rigorous inspection prospectus and approvals. SPAC companies have become the hot fashion in the American market in the last year and many companies have entered the stock market, including quite a few Israeli companies such as Iron Source, Pioneer, Tabula, Autonomo, Invis, Celebrity and many more.
During the year, quite a few of the shares of the companies that entered the stock market through the Spock merger have collapsed by tens of percent since the merger, raising the question of whether these companies were at all worth the value they received in the merger. In addition, many companies that used this shortcut to the stock market found that just before the merger – investors preferred to stay with the money in hand and get out of the investment, thus losing tens and even hundreds of millions of dollars of the amount they hoped to raise – and this has implications for their own operations. So Spock’s advantage is that the stock can not fall too much before the merger – the merging company gets certainty about its value in the issue, but after the issue these shares fell one after the other and caused heavy losses to investors.
An equally significant problem is the fact that while an IPO company is not allowed to provide forecasts, certainly not unfounded and exaggerated, about an expected jump of hundreds and thousands of percent in revenue within a few years, these restrictions did not apply to SPAC companies and they issued very high forecasts. , When it is not at all clear that they will be able to meet them – and while quite a few of those Spock companies are start-ups that are still losses.
In the SEC many debated what to do, and perhaps even lingered too long, but now it seems that they have finally formulated an outline. In practice, the SEC plans to make regulation more difficult for these companies to try to return the market to proportions, as well as protect investors from information the company has and not investors (asymmetric information), as well as protection against conflicts of interest and fraud, which are not common IPOs.
“Functionally, the SPAC IPO serves as an alternative to a standard IPO,” said SEC Chairman Gary Gansler. For exposure, marketing practices, gatekeepers and issuers. ”
So what is the SEC planning?
The first thing the SEC is proposing is to ban Spac companies from publishing “forward-looking” business forecasts, which should not be provided in a standard offering. In this way, the managers of the SPAC will be exposed to lawsuits if investors feel that the valuations of the SPAC companies were pink, not to mention unfounded.
In addition, the Authority is interested in requiring the Spac companies to provide the company’s real address so that it can be an official partner when submitting the forms, along with creating a clearer policy of conflicts of interest, fee payments and of course – diluting investor holdings, and updating the US Securities Act. The types of reports that Spock companies can file on the same potential merger transactions.
What is SPAC?
Spock is actually a company with no real activity, an open check of a mountain of cash that requires investing it. Most often, the people behind these companies are venture capital funds or investment banks, which together with a well-known businessman, join hands to find a business activity and merge it into the skeleton full of cash. If no merger is made within 24 months from the date of issue, the company falls apart and the money is returned to investors plus interest, but less the expenses required to find the investments.
The advantage for investors in Spack (as opposed to merging through a skeleton) is that Spock has a ‘floor price’ for the loss – since Spack’s shares can be converted back in a predetermined amount, Spacks should not fall significantly below this amount, which is the amount less the company’s search expenses.
This means that entrepreneurs have two years to find a private company that would like to join the stock market through Spock’s shortcut, that is, bypassing the IPO procedure by requiring the incoming company to submit a prospectus, and also not allowing it to boast further forecasts and increase the appetite of investors seeking quick returns.
The merging company will know in advance the market value it will receive and the amount raised (through negotiations with the Spac leaders and as opposed to the need to negotiate the value with the institutional ones).