The Securities and Exchange Commission (SEC) adopted new rules aimed at better protecting investors of special purpose acquisition companies (SPACs).

Compared to the traditional IPO process, SPAC IPOs and de-SPAC business combinations can be used as an alternative means for private companies to enter the public markets.

But “given the complexity of these transactions, the Commission seeks to enhance investor protection in SPAC IPOs and de-SPAC transactions with respect to the adequacy of disclosure and the responsible use of projections,” the SEC announced Jan. 24.

The new rules and amendments include, among others:

  • Enhanced disclosures about conflicts of interest;
  • Details about SPAC sponsor compensation;
  • Providing additional information about the target company to investors; and
  • Requiring target companies to assume responsibilities for disclosures in registration statements.

“The rules more closely align the required disclosures and legal liabilities that may be incurred in de-SPAC transactions with those in traditional IPOs,” the SEC wrote.

SPACs have been around since the 1990s and the dot-com era. But when global financial markets crashed during the COVID-19 pandemic and traditional IPO activity stalled, SPAC activity started growing to record levels.  

But in the spring of 2022, the SEC proposed new rules to strengthen SPAC disclosures and merger transactions with shell companies. That overhanging threat of federal intervention froze the booming SPAC market, and deal volume trailed off.

Private companies focused on opportunities in clean energy and energy transition saw a significant amount of SPAC investment during the pandemic, according to data compiled by White & Case.

Several oil and gas and oilfield services companies have also used the SPAC route to go public, including Drilling Tools International, Granite Ridge Resources, HighPeak Energy and Magnolia Oil & Gas.

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