SEC clampdown on SPACs to bring maturity to market

New accounting rules slow down fintech SPAC activity

By Aoife Morgan | 4 May 2021

The Securities Exchange Commission (SEC)’s latest accounting and reporting considerations for Special Purpose Acquisition Companies (SPACs) will improve the maturity of the market, according to Betsy Cohen, chairman at FinTech Masala.

However, Cohen said fintech SPAC activity had slowed down following the regulator’s announcement that warrants issued by SPACs should be accounted for as liabilities instead of equities.

“There are a number of people who think that doing a SPAC is an easy thing but it really requires a number of skill sets, not all of which are held be everyone who is currently heading up the SPAC effort,” said Cohen, speaking at this year’s LendIt fintech USA.

“There will be SPACs which will have a limited life. Most of them are two years to find and execute on a merger, some of them will not complete and some of them will fail. And that will be a good thing for the maturity of the market, it will allow both investors and target companies to distinguish between experienced and inexperienced sponsors and between knowledgeable and maybe beginner sponsors.”

SPACs have become a popular choice among fintechs due to the unique approach to investor relations, said Cohen.

“It's not always easy to help an investor understand what the company is about without showing them what it is that the company will achieve and what it has achieved. That is, in fact, a significant differentiator between a SPAC offering and either form of IPO that the structure is a merger, so called reverse merger.

“The requirement is that the combination of the two companies project forward what those companies will look like together over the next maybe two, three, four or five years depending upon the cycle that provides the platform for companies that are growing quickly, to have a conversation with investors about what will be and that is really the investment basis upon which this kind of transaction comes together.”

Last year, SPACs made up the largest growth area in the US IPO market compared to the previous year, according to Nasdaq.

“There's no place in this investing world, which has more growth companies, then the FinTech industry, in part, it's due to the growth of technology and the maturity of that industry, but also due to the adoption by businesses and individuals of much more sophistication and greater hardware as well as software in the internet area.”
 

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