Special Purpose Acquisition Companies (SPACs) and the SEC

67 Pages Posted: 16 Aug 2021 Last revised: 2 Dec 2021

See all articles by Neal Newman

Neal Newman

Texas A&M University School of Law

Lawrence J. Trautman

Prairie View A&M University - College of Business

Date Written: August 15, 2021


Special Purpose Acquisition Companies (SPACs) are simply enterprises that raise money from the public with the intention of purchasing an existing business and become publicly-traded in the securities markets. If the SPAC is successful in raising money and the acquisition takes place, the target company takes the SPAC’s place on a stock exchange, in a transaction that resembles a public offering. Also known as “blank-check” or “reverse merger” companies, this process avoids many of the pitfalls of a traditional initial public offering.

During late 2020 and the first six months of 2021 an unprecedented surge in the popularity and issuance of Special Purpose Acquisition Companies (SPACSs) takes place. John Coates, the SEC’s Acting Director of the Division of Corporation Finance, observes, “Concerns include risks from fees, conflicts, and sponsor compensation, from celebrity sponsorship and the potential for retail participation drawn by baseless hype, and the sheer amount of capital pouring into the SPACS, each of which is designed to hunt for a private target to take public.”

We discuss this popular approach to capital formation within the context of the securities issuance process and examine the robust market for SPAC issuance during 2020 and early 2021. Financial reporting and auditing considerations are examined, along with regulatory concerns. Several examples of these offerings are provided. We believe this paper adds to the discussion and understanding of this widely employed financing mechanism.

Keywords: acquisitions, blank check, capitalization, corporate finance, entrepreneurship, governance, initial public offering, issuance, M&A, mergers, private equity, regulation, reverse merger, risk, SEC, securities law, special purpose acquisition companies, SPACs, start-up, venture, withdrawal

JEL Classification: G00, G01, G10, G14, G18, G20, G23, G24, G28, G32, K20, K22

Suggested Citation

Newman, Neal and Trautman, Lawrence J., Special Purpose Acquisition Companies (SPACs) and the SEC (August 15, 2021). University of Pennsylvania Journal of Business Law, Forthcoming, Texas A&M University School of Law Legal Studies Research Paper No. 21-49 , Available at SSRN: https://ssrn.com/abstract=3905372 or http://dx.doi.org/10.2139/ssrn.3905372

Neal Newman

Texas A&M University School of Law ( email )

1515 Commerce St.
Fort Worth, TX 76102
United States

Lawrence J. Trautman (Contact Author)

Prairie View A&M University - College of Business ( email )

Prairie View, TX
United States

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