“SEC Seeks to Curb Lofty SPAC Projections

Statement by regulator’s acting director addresses the frenzy over blank-check company deals”

This is from the Wall Street Journal yesterday (April 8), and it could be a big deal. One of the major advantages of a company going public via a SPAC (Special Purpose Acquisition Company) is that they can make financial projections, which they cannot do in an IPO. This allows companies that maybe don’t look great on paper to make a case to investors about future growth. This is of course a double-edged sword; some of these companies won’t meet their projections and shareholders will get burned. On the other hand, some of these companies will meet their projections, and investors, who maybe wouldn’t have bought in a traditional IPO, would buy with knowledge of the projections. 

With all the SPACs out there trying to find deals, will this make it harder? Maybe. It’s certainly something we will be watching and yet another reason why picking the right management teams in SPACs is so important.

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