Special-purpose acquisition companies (SPACS), also known as blank check firms, have become a bit of a fad lately. The excitement around SPACS has drawn the attention of the SEC, which is giving them some new scrutiny. Dave Michaels and Alexander Osipovich report for The Wall Street Journal:
Blank-check companies that have raised tens of billions of dollars to acquire hot startups are under the microscope at the Securities and Exchange Commission.
Such companies, also called special-purpose acquisition companies, or SPACs, are shell-like entities that go public in order to raise cash for acquisitions. Startups can then combine with a SPAC to go public, in an alternative to a traditional initial public offering.
SEC Chairman Jay Clayton said Thursday that the regulator is examining how sponsors of blank-check companies disclose their ownership and how any compensation is tied to an acquisition. Investors buy shares in SPACs before the SPACs have done a deal, and they have the option to exit before a transaction is finalized.
“One of the areas in the SPAC space I’m particularly focused on, and my colleagues are particularly focused on, is the incentives and compensation to the SPAC sponsors,” Mr. Clayton said in an interview on CNBC. “How much of the equity do they have now? How much of the equity do they have at the time of the IPO-like transaction? What are their incentives?”
Mr. Clayton’s comments briefly caused a sharp selloff in the shares of SPACs and companies that have done SPAC transactions.
Nikola Corp. , an electric-truck startup that went public through a SPAC deal this year and was recently thrown into turmoil by fraud allegations, fell as much as 24% in morning trading before paring its losses. Its shares closed 9.7% lower.
Shares of Tortoise Acquisition Corp., a SPAC that has announced but not yet closed a deal with electric- and hybrid-vehicle startup Hyliion Inc., dropped 26% after the opening bell. They were down 9.7% when markets closed.
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