Far-Reaching Rules Proposed by SEC Would Transform SPAC Process to Make It More Burdensome than a Traditional IPO

On March 30, 2022, the SEC proposed new rules that would eliminate many of the current benefits for a private company in going public through a merger with a SPAC rather than through a traditional IPO process. The proposed rules are more far-reaching than was expected and would transform the SPAC process, making it lengthier, more costly, and more complex, and imposing a greater risk of liability for the entities involved. While the SEC stated in the proposing release that the proposed rules are intended to provide investors with disclosures and liability protections comparable to those that would be present in a traditional IPO, we would observe that, arguably, the proposed rules are in fact significantly more burdensome than those applicable in a traditional IPO--in light of the requirements relating to the SPAC making a fairness determination with respect to the de-SPAC transaction and the significantly expanded potential liability for financial advisors and others with respect to de-SPACs. Even before issuance of the proposal, the SPAC market has been receding due to increased regulatory, judicial and investor scrutiny and skepticism. The proposed rules, if adopted, would accelerate this trend. In the attached Client Memorandum, we summarize the proposed new rules; discuss their likely impact; and note open issues arising from the proposal.