August 24, 2022
SPACs: Are the SEC’s Proposed Rules SPAC Insecticide?
Here in Ohio, we’re being warned to be on the lookout for the spotted lanternfly. I guess this thing showed up in the U.S. about a decade ago and is becoming quite a problem. So, the official guidance is that if we come across one, we’re supposed to terminate it with extreme prejudice. I’m not sure that deputizing a citizens’ militia to murder lanternflies is going to do much good, and I was thinking that if the government was really serious about killing off the spotted lanternfly, maybe they should regulate it under the Investment Company Act.
I say that because, according to this Institutional Investor article, subjecting SPACs to regulation under the Investment Company Act as the SEC has proposed will go a long way toward eradicating them:
The Securities and Exchange Commission’s proposed new rules on special purpose acquisition companies could force almost half of the SPACs that are still searching for a merger partner into liquidation, according to a new report from SPAC Insider. Those SPACs account for $80.6 billion in capital that is now held in trust, but which would be returned to investors.
Under the SEC’s proposal, a SPAC would need to announce a deal within 18 months from the date of its IPO and close within 24 months in order to avoid falling under the Investment Company Act of 1940.
“As investment companies, their activities would be severely restricted and subject to very burdensome compliance requirements,” wrote Kristi Marvin, the founder of SPAC Insider and author of the report. “Those requirements can get quite expensive, and most SPACs do not have the funds available to pay for it.” As a result, she said, “liquidating would be the most palatable and likely solution in that situation.”
According to the article, there are currently 141 SPACs that have been hunting for a deal for 18 months, and that number will jump to 256 by next month. That’s 44% of the SPACs currently seeking a merger partner. It remains to be seen whether any rulemaking that the SEC adopts will be the death knell for SPACs, but it seems that the agency’s proposal has already stopped SPACs’ efforts to migrate to other countries cold – which is a lot more than governments have been able to do with the lanternfly.
– John Jenkins