April 8, 2021 - SPACS, or Special Purpose Acquisition Companies, have been all the rage (and all over the news for the past few months) and the LSTA held a timely webinar this week to explore what they are, why they are so popular, what kind of risks they pose and what the SEC is thinking about them. The webinar panel was moderated by Jennifer Hagle, a partner at Sidley and included her colleague, Vijay Sehkon, and John Traugott, a Managing Director and Head of De-SPAC Advisory, Equity Capital Markets, at Credit Suisse. Ms. Hagle opened the presentation with some startling SPAC numbers that highlighted the growth and popularity of SPACs. In 2020, 248 SPACs, generating $83 billion in proceeds, were issued. In contrast, only 59 SPACs, generating $14 billion in proceeds, were issued in 2019. In the first quarter of 2021, 296 SPACs went public generating more that $87 billion in proceeds, eclipsing all the 2020 SPAC deals and 85% of those deals have been oversubscribed. In all, 430 SPACs are looking for targets and another 256 have not yet placed their public offerings. The obvious question is why the dramatic increase and why now? Mr. Traugott identified three primary reasons. First, the SPAC structure has evolved most importantly through the separation of the M&A vote and the ability to redeem shares for cash, which allows virtually all deals to be approved. Second, the use case is compelling, allowing companies in growth-equity venture industries (notably electric vehicles and energy transition) to go public based on projections. Third, the quality of sponsors of SPACs improved, attracting well-known venture and private equity companies which, in turn, are able to attract higher quality target companies. Mr. Sehkon followed with a deep dive into the structure and economics of SPACs, the lifecycle of a SPAC, and the challenges and risks of SPACs. The panel then focused on emerging regulatory issues, including the SEC’s recent focus and releases on SPACs. The panelists agreed that the SEC is particularly concerned with ensuring that retail investors, who have been flocking to SPACs, are receiving sufficient disclosure and fully understand the risks associated with these investments. A recording of the webinar and the accompanying presentation are available here.
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