Goldman Sachs has suspended new proposals from Spac, said people familiar with the matter, in another blow to companies with empty checks as regulators approach the market that once burst.
The move marks a setback for Wall Street Investment Bank, which last year was ranked as the second-largest underwriter for special-purpose acquisitions, helping sponsors raise nearly $ 16 billion, according to data from Refinitiv.
Goldman will also stop working with most of the Spacs that it helped spread to the masses, one person added.
Spacs are shell companies that raise money from investors and are listed on the stock exchange. Their sponsors are then looking for a private company to bring out to the public through a merger. Vehicles experienced an increase in popularity in 2020, but have since attracted regulation examination.
The U.S. Securities and Exchange Commission has vigorously proposed Spac market reforms aimed at improving transparency and adapting the rules more closely to those of traditional initial public offerings.
God Proposal, Which is open to public comment, will increase the underwriters’ liability by requiring banks working on Spac issues to work on the subsequent merger as well. Banks will also be responsible for any misrepresentation related to the merger.
“We are reducing our involvement in the Spac business in response to a change in the regulatory environment,” Goldman said.
Goldman was one of the biggest winners in the last Spac swing, enjoying the lucrative commissions that come with working on Spac offerings and subsequent mergers, but has since retreated as investor interest has cooled and performance has waned. Bloomberg reported earlier that the bank is reducing its involvement with Spacs.
Citigroup has also taken a more cautious approach to Spacs following the proposed rules, said a person briefed on the matter. The group, which in 2021 was the senior signing of Spac IPOs, has not worked on a new registration of blank checks since the announcement of the offer.
Banks typically receive about 5% of Spac’s issuance receipts in commissions, with about 3.5% of what they earned after the empty check composition completed its merger with a private company.
The SEC’s proposal sees deferred commissions as proving a “strong financial interest” in completing the merger, and therefore banks should be seen as signing a deal and taking on any related obligations.
“This is a pretty significant rewriting of historical practice as what fits in as a signatory liability,” said one Spac lawyer, adding that “banks are very nervous about being considered underwriters.”
The SEC’s proposal comes in the wake of last year’s regulatory investigations into Spac deals.
Lucid Motors, an electric car company that went public through a merger with Churchill Capital Corp IV Tested About revelations she made when the company was listed.
Digital World Acquisition Corp., a Spac company that takes the entertainment startup of former US President Donald Trump, Trump Media and Technology Group, to the public, last December said authorities researcher Information between the two groups.
Goldman Sachs pauses work on new Spacs after SEC takes tougher stance Source link Goldman Sachs pauses work on new Spacs after SEC takes tougher stance