Recently, new SEC Commissioner Gary Gensler indicated the agency would be focusing more on SPACs. The SEC scrutiny will likely center on the S-4 where SPACs leverage projections to highlight the potential of the acquisition target.
In addition to the common S-1, SPACs file an S-4 once a merger (de-SPAC) has been completed. The S-4 more closely resembles the S-1 of a traditional IPO.
One of the key advantages of going public via SPAC is the ability to use forward-looking statements in the S-4 and investor roadshow.
The original S-1 (filed when SPACs go public but before the de-SPAC) provides legal cover for the S-4.
Companies that have established filings with the SEC are protected under “safe harbor” provisions, established as part of the Private Securities Litigation Reform Act of 1995. This regulation shields management from liability when making financial projections in good faith.
Traditional IPOs are filed by companies without public track records and are not protected by this provision since the S-1 is their first filing.
For this reason, companies typically do not include financial projections in a registration statement and related prospectus for an IPO due to the risks associated with those disclosures.
Because a de-SPAC is technically a merger, companies are expected to tell investors about the future prospects of the business whereas an IPO is backward looking.
This ability to provide projections directly to the investors is a key feature of de-SPAC transactions. However, future projections are required to be balanced, reasonable, and well-documented.
Moving forward, this is where I expect the SEC to focus since SPACs are here to stay.