INTRODUCTION
2020 marked an incredible surge in the prevalence of Special Purpose Acquisition Company (“SPAC”) initial public offerings and business combinations (“deSPAC transactions”). In 2020, there were 248 SPAC IPOs (raising total gross proceeds of over $83 billion) and 66 deSPAC transactions, as compared with 2019’s 59 SPAC IPOs (raising approximately $13.6 billion in gross proceeds) and 28 deSPAC transactions.
[1] And the pace continues to skyrocket in 2021 with 160 SPAC IPOs in the first two months of the year and 13 completed deSPAC transactions.
[2] This spectacular rise, and the related profits, has unsurprisingly garnered attention from both the United States Securities and Exchange Commission (“SEC”) and plaintiffs’ law firms. Most recently, the SEC’s Division of Corporation Finance released guidance
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SPACs have seen exponential growth in 2020, but SPAC sponsors, investors and targets should beware the scrutiny de-SPAC transactions are receiving from the plaintiffs’ bar and the
TAKEAWAYS
2020’s SPAC IPO explosion will inevitably lead to some underwhelming de-SPAC transactions (or failures to consummate any transaction at all) and thus a likely increase in SPAC-related litigation.
SPAC litigation will likely embroil not only SPAC sponsors but also the directors and officers of the acquisition target and the continuing public entity that takes over the target’s business.
Although SPACs present a unique method of creating a public company, the key steps to limit litigation risk and regulatory scrutiny are familiar ones e.g., thorough diligence, comprehensive disclosures and reasonable forecasts.