New SEC rules could dampen SPAC activity

COLORADO SPRINGS — Proposed rules by the Securities and Exchange Commission that would make mergers of special purpose vehicles more like traditional IPOs could have a significant impact on space sector financing.

“I imagine SPACs will be used much more narrowly,” said Jim Lee, senior vice president and general counsel of Maxar Technologies, April 4 during the 37th Space Symposium Space Law Workshop.

In 2021, 12 space startups raised nearly $4 billion through SPAC deals.

“Most of it isn’t debt,” Lee said. “That’s cash on the balance sheet.”

The proposed SEC rules, published March 30, would align SPAC disclosure and liability rules more closely with those of traditional IPOs. For example, companies would have to disclose who would benefit from the SPAC deals and at what share price.

In some cases, SPAC sponsors the profit when a company’s stock price exceeds $3 after the IPO.

“Obviously, if you’re a shareholder in this SPAC, you’re not making any money until you surpass $10,” Lee said. “So that’s a pretty obvious conflict that a lot of people didn’t understand as a conflict.”

Under the proposed SEC rules, SPAC underwriters would also be liable for material misstatements of fact, just like underwriters of traditional IPOs.

Prior to the SEC proposal, space-related SPAC activity slowed. canceled plans for a SPAC merger in early March. When Terran Orbital went public in late March, company executives emphasized the company’s national security and defense work.

Many space companies that went public in 2021 through SPAC mergers are trading well below their IPO price of $10.

“I think there are actually some SPACs that are a little devalued and are trading lower than they should because they have a SPAC stink that they can’t get rid of,” said Monica Palko, York’s chief legal and administrative department Space Systems officer.

As a result, CEOs who didn’t do roadshows to explain their company’s promise before IPOs are now going on roadshows to tell investors, “We’re not like those other SPACs.” We have income. We have contracts,” said Palko.

Overall, it is important for companies to carefully weigh the pros and cons of SPACs.

“A SPAC is a tool like a shovel,” Palko said. “You can use a shovel to dig up a garden, or you can use a shovel to club someone to death. A SPAC is a legitimate way to go public, but it really should never be viewed as a shortcut to an IPO.”

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