New SEC boss’s SPAC work is already partly done

The engine of SPAC issuance was arguably spinning too fast anyway, after an already record-breaking 2020 was easily eclipsed in just the first quarter of this year

  
A child leaps off a bench outside the New York Stock Exchange (NYSE) in New York City, U.S., March 19, 2021. Image used for illustrative purpose

A child leaps off a bench outside the New York Stock Exchange (NYSE) in New York City, U.S., March 19, 2021. Image used for illustrative purpose

REUTERS/Brendan McDermid

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

NEW YORK  - Gary Gensler is enough of a politician to know the value of a quick win. The new chair of the U.S. Securities and Exchange Commission was only sworn in on Saturday. He can already point to a sharp slowdown in the previously frothy world of new blank-check company floats and in dealmaking by these so-called special-purpose acquisition companies, or SPACs.

Last week, only two new SPACs floated on U.S. markets, according to Dealogic, down from an average of more than 25 per week in the peak month of March. The vehicles raise cash with the goal of buying another company, and the pace of those deal announcements has dropped off, too.

The engine of SPAC issuance was arguably spinning too fast anyway, after an already record-breaking 2020 was easily eclipsed in just the first quarter of this year. The flood may also have given some investors indigestion, including institutions like BlackRock and Fidelity that buy into acquisitions alongside SPACs. Since the end of March, though, the SEC has also been pouring cold water on hot features.

Gensler’s agency has chilled two big perceived advantages. Staff have suggested that a SPAC acquisition, known as a de-SPAC, may in substance be the real initial public offering, which could make due diligence and disclosure norms resemble those of an IPO. And they have raised questions about the use of rosy projections for SPAC targets, suggesting at a minimum the need to enumerate risk factors and also that legal liability may be greater than some practitioners thought.

A few dozen such risks took up three of 35 pages in an investor presentation for Altimeter Growth's AGC.O $40 billion de-SPAC deal with Southeast Asian ride-hailing-to payments app Grab, one of the few to land last week following the SEC’s statements. Other disclaimers occupied another four pages.

For now, concerns about whether ramping up disclosure does enough has helped put the brake on SPACs, while traditional IPOs continue to flow. IPOScoop.com tallies 19 non-SPAC offerings in April so far, and enough in the pipeline to top 30 for the month, beating the January-to-March average.

Yet SPAC Research counts 431 vehicles listed and looking for a target and 266 more waiting for IPOs. The craze offers watchdogs another way to help companies onto public markets, something the SEC has encouraged in the past. How to take advantage of that while curbing excesses is Gensler’s next challenge.

CONTEXT NEWS

- Gary Gensler, President Joe Biden’s nominee to chair the U.S. Securities and Exchange Commission, was sworn into office on April 17.

- Two special-purpose acquisition companies listed on U.S. markets in the week beginning April 12, according to Dealogic. On average, more than 25 SPACs completed initial public offerings during each week in March.

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

(SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS http://bit.ly/BVsubscribe | Editing by Lauren Silva Laughlin and Amanda Gomez) ((richard.beales@thomsonreuters.com; Reuters Messaging: richard.beales.thomsonreuters.com@reuters.net))

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