April 4, 2022
Is it possible that there is a conflict of interest in the proposed regulations?
To a novice it would appear that there is a potential material conflict of interest with the SECs intentions being connected to the underwriters of Traditional IOPs.
Most retail investors don't have the opportunity to invest in promising privately held companies due to a host of hurdles. Foremost being, Traditional IOPs are controlled by an oligopoly governed by autocrats who dole out shares in an IPO to their fat-cat clients. Furthermore, Traditional IOPs are often mispriced with some recent studies showing that it would appear they are calculatedly misprices to make certain underwriters benefit.
One must remember that the little investor rarely if ever gets access to the top IPOS and that for the most part the underwriters of IPOS charge exorbitant commissions for the privilege of purchasing shares.
SPACs are a way for small public investors to partner' with investment professionals and venture capital firms who source and perform due diligence on these companies that has the potential to turn into an additional source of capital appreciation in the small investors portfolios. As a partnership SPACs allow their IPO investors to benefit from the expertise of a sponsor, with some downside protection as a result of their option to redeem shares prior to any acquisition for the IPO price plus any interest accumulated in the trust account. In connection with the De-SPAC transaction, SPACs offer the holders of public shares the right to redeem their public shares for a pro rata portion of the proceeds held in the trust account, which typically results in a redemption amount equal to approximately $10.00 per public share, the initial IPO price.
Investors including those that have purchased shares of the SPAC on the secondary market have a say on whether the SPAC moves forward with a proposed acquisition by voting on the announced financing conditions and purchase agreement. Effectively, if the De-SPAC transaction never occurs, the public shareholders get their money back
Yes, the cost of a SPAC IPO can be expensive but on the face of it, it appears cheaper than a traditional IPO. Underwriters' fees are 2% of the amount raised upfront with a further 3.5% contingent on a deal taking place. This 5.5% is less than the 7% often charged for a Traditional IPO. Additionally, SPAC sponsors often are experienced financial and industrial professionals. They can tap into their network of contacts to offer management expertise or take on a role themselves on the board aiding the little investor.
It appears the SEC once again wishes to protect the turf of the rich elite by favoring underwriters and their wealthy friends against the little investor. The proposed rules are A COVERT ACTION to make SPACs prohibitively expensive and legally burdensome with the end result of prohibiting SPACs. The SEC is using the usual privileged class aphorism under the guise of helping the little guy that always penalize the little guy, while benefitting the oligopoly.
I urge the SEC to forget this boondoggles expansive new SEC rule proposals seeking to rewrite the SPAC Playbook to favor the oligopoly.