US securities regulator steps up scrutiny of blank-cheque vehicles
The US securities regulator has issued new guidance for special acquisition companies (SPACs) amid concerns they have improperly accounted for warrants sold or handed to investors.
SPACs have become a popular route for companies wanting to go public. They are created and listed to raise money with the intention of buying a private company within two years.
Warrants are an essential part of how the vehicles raise money and have typically been classified as equity on balance sheets.
Now the Securities and Exchange Commission (SEC) has called this into question which could force a number of SPACs to refile their financial statements to account for warrants as a liability.
“While the specific terms of such warrants can vary, we understand that certain features of warrants issued in SPAC transactions may be common across many entities,” the SEC said in a statement late on Monday.
“We are issuing this statement to highlight the potential accounting implications of certain terms that may be common in warrants included in SPAC transactions and to discuss the financial reporting considerations that apply if a registrant and its auditors determine there is an error in any previously-filed financial statements.”
It was only a matter of time before regulators stepped up scrutiny of SPACs, which have proliferated in the past year. Unprecedented sums have been raised by the companies which has led some critics to dismiss the phenomenon as a bubble.
But US SPACs are already starting to target European companies including online car seller Cazoo, which recently agreed to merge with New York-listed vehicle Ajax I.