SPAC Deja Vu

There’s been a lot of talk this year in the SPAC market about how it’s finally reverting back to a healthier version of deal flow and the comparison is always, “….like 2019”.  In fact, in 2019, Trump was in office and there were 59 SPAC IPOs priced.  As of this morning, Trump was re-elected to office and there are 55 SPAC IPOs priced.

Additionally, on December 22, 2019, the U.S. Government shutdown for 35 straight days, upending SEC filings and deal-making activity.

Well, add Government Shutdowns to the list of 2019/2024 comparables because we may once again be headed there on December 21, 2024.

In essence, the SEC does not want a shutdown to bring capital raising in the public markets to a halt. But, given the circumstances, the SEC will not have the man power to review filings. As such, the SEC has updated their site with action plans in the event of another shutdown, and you can find the Division of Corporate Finance’s FAQ page here. However, we thought it might be helpful to review what happened to SPACs in 2019, and how SPAC IPOs can handle another government shutdown in 2024/2025.

The good news is, the 35 day shutdown in 2019 was great training for any subsequent government shutdowns, so for those who were around during the 2019 era, you’ll most likely have good muscle memory. In a nutshell, the SEC effectively closes except for some skeleton staff. Edgar can still receive filings, but basically no one is there to review it.

For SPAC IPOs in 2019, this wound up being only a minor problem because they are simply shell companies without any “operating company” details to review. Plus, SPAC registration statements are fairly boilerplate. They all basically read the same, but with different management teams and small differences in terms. This means that if a SPAC wants to price their IPO without an SEC review (in the event a shutdown continues to drag on), it’s probably fine (and many did in 2019).

Traditional IPOs, on the other hand, have significantly more liability risk if they want to price without an SEC review given that these are operating companies. Hence, during the last shutdown, SPACs were the only game in town. Everything else ground to a halt.

However, if a SPAC does want to price in this scenario, they have to remove the “delaying amendment” on the registration statement’s cover page, at which point the registration statement becomes effective after 20 days….without SEC comment.

A word of caution though: When the SEC says “remove the delaying amendment” they do not mean remove that section entirely. Rather, they want you to rephrase it.

By way of example, let’s look at how the 2019 SPACs handled it.

Below is a screenshot of what a delaying amendment looks like and is what you would normally find on today’s registration statements. It’s circled in red.

In order to “remove the delaying amendment”, a SPAC needs to write this instead so that it reads as, “This registration statement shall hereafter become effective….”. Example below in red again.

That means, 20 days later the registration statement will get effective and can price their IPO.  This is considered an acceptable “removal” of the delaying amendment by the SEC.

What is not acceptable is removing the amendment entirely.  There was initially some confusion in 2019 and some SPACs did, in fact, just delete that section. It looked like this…

Definitely do not do that.

At any rate, there’s still time to avoid a shutdown entirely and even if we do shutdown, hopefully it will be short-lived. However, for SPAC IPOs, they can still grind on in either scenario, it’s just a 20-day waiting period.

Nonetheless, if we do go into shutdown this weekend, you can bet on a number of S-1/A refilings next week ahead of Christmas without delaying amendments, just in case this drags on for awhile.