In 2021, the SPAC (Special Purpose Acquisition Company) market was red hot with approximately 610 SPAC IPOs! A SPAC transaction is designed to pool investors’ money (a “blank check” company) for the purpose of identifying and acquiring a target company. The SPAC usually has 18-24 months to complete the acquisition and business combination, called the de-SPAC process, which requires a specific set of filings for the target company to become the new reporting entity. While the SPAC market has cooled, the rise in SPAC transactions raised concerns among investors and regulators about their inherent risks.
On Jan. 24, 2024, the SEC adopted a final rule to enhance disclosures and provide additional investor protections in SPAC IPOs and de-SPAC transactions. In a significant disclosure change, the SEC will require the new tailored prospectus disclosures to be Inline XBRL (iXBRL) tagged beginning June 30, 2025. This is the first time that SEC will require iXBRL tagging in an IPO, a change that may signal that the SEC will require more IPO tagging in the future.
New Item 1600 of Regulation S-K: SPAC Prospectus disclosures: July 1, 2024
New Item 1600 of regulation S-K requires specific disclosure in the prospectus section of applicable registration statements for SPAC IPOs and de-SPAC transactions. The final rule became effective on July 1, 2024, and the new prospectus items are required in applicable filings on/after that date. The new prospectus disclosures are required to be Inline XBRL tagged beginning June 30, 2025.
New prospectus disclosure topics include:
- Specific Prospectus cover page
- Conflicts of Interest
- Sponsors
- Board of Directors
- Timeline to complete an acquisition
- Dilution of the SPAC value, such as fees and compensation
- Warrants
- Redemptions
The specific prospectus items required are different for a SPAC Initial Public Offering (IPO) and for a de-SPAC transaction. SPAC IPOs on Form S-1 and F-1 required prospectus items:
- Item 1602: Registered offerings by special purpose acquisition companies.
- Item 1603: SPAC sponsor; conflicts of interest. De-SPAC process:
de-SPAC process filings on Form S-1 (resale), S-4 and F-1 (resale) and F-4 prospectus items:
- Item 1603: SPAC sponsor; conflicts of interest. De-SPAC process
- Item 1604: De-SPAC transactions
- Item 1605: Background of and reasons for the de-SPAC transaction; terms of the de-SPAC transaction; effects
- Item 1606: Board determination about the de-SPAC transaction
- Item 1607: Reports, opinions, appraisals, and negotiations
- Item 1609: Projections in de-SPAC transactions
Inline XBRL tagging of Prospectus Items begins June 30, 2025
The new prospectus items disclosed in both the SPAC IPO and de-SPAC transaction filings will be required to be Inline XBRL (iXBRL) tagged to improve comparison and analysis of the data for both investors and the market. The SEC provided filers with an additional year after the effective date of the rule to comply with the iXBRL tagging requirements. Tagging will begin June 30, 2025.
In the final rule, the SEC asserts “that the structured data requirements will enhance the usability of the SPAC disclosures. These structured data requirements will make SPAC disclosures more readily available and easily accessible to investors and other market participants for aggregation, comparison, filtering, and other analysis.” The new disclosures are unique to the SPAC and de-SPAC business structure and will require new XBRL elements (the tagging labels applied to specific disclosures). The tagging varies from narrative disclosures which require block text tagging to numeric or qualitative data which requires detailed tagging. The SEC will propose and implement a new taxonomy to define these elements. Once final, the SEC will post the new SPAC taxonomy ahead of the June 30, 2025, tagging deadline to ensure filers and their service providers have time to prepare for Inline XBRL tagging.
Tagging of the new prospectus disclosures will be required beginning with a SPAC’s IPO filing (i.e. an S-1 or F-1 filing). This is a significant change in existing tagging requirements. Previously, every corporate IPO was exempt from tagging. Every registration statement in the SPAC process will require tagging, except for any S-4 or F-4 filed by the private target.
The financial tagging requirements for existing SPACs do not change:
- financial tagging begins with the SPAC’s initial 10-Q after IPO, and
- the financial statements for the SPAC and the target are required to be tagged after the business combination in any secondary registration statement.
Other final rule highlights:
- Additional disclosures about:
- SPAC sponsor compensation,
- Conflicts of interest,
- dilution,
- the target company, and
- other information.
- Require the target company in a de-SPAC transaction to be a co-registrant with the SPAC;
- More closely aligning the required disclosures in a de-SPAC transaction with those in traditional IPOs;
- Additional disclosures in de-SPAC transactions regarding:
- any determination by a board of directors or similar body whether the de-SPAC transaction is advisable and in the best interests of the SPAC and its shareholders.
- any outside report, opinion, or appraisal received that materially relates to the de-SPAC transaction;
- A 20-calendar-day minimum dissemination period for prospectuses and proxy and information statements filed for de-SPAC transactions;
- Re-determination of smaller reporting company status following the consummation of a de-SPAC transaction and requiring such re-determination to be reflected in filings beginning 45 days after the de-SPAC transaction’s consummation.
- Financial statement requirements applicable to transactions involving shell companies and private operating companies better aligned with those in traditional IPOs.
New Exhibit 98 “Reports, opinions, or appraisals in de-SPAC transaction” in S-1, S-4, F-1, F-4, and Schedules TO, 14A and 14C. The SEC implemented the new exhibit in the EDGAR release 24.2 on July 1, 2024.
Compliance Timing
- Rule effective: Jan. 24, 2024
- Beginning July 1, 2024, SPAC prospectus disclosures are required in applicable filings.
- Inline XBRL tagging is required beginning June 30, 2025
Resources
- SEC Fact Sheet: https://www.sec.gov/files/33-11265-fact-sheet.pdf
- SEC Press Release: https://www.sec.gov/news/press-release/2024-8
- SEC Final rule: https://www.federalregister.gov/documents/2024/02/26/2024-01853/special-purpose-acquisition-companies-shell-companies-and-projections
- Law firm post: https://www.mintz.com/insights-center/viewpoints/2901/2024-05-13-recent-sec-rules-and-guidance-impose-new-obligations
How Toppan Merrill can help:
Learn more about Toppan Merrill’s deep experience and technical support that can help drive successful preparation, execution and post-de-SPAC transaction success here — or connect to one of our experts at [email protected] or by calling 800.688.4400.
