About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline

LOG IN
LOG IN


2023 Univ. Chi. Bus. L. Rev. Online Edition 1 (2023)

handle is hein.journals/uvierschia2023 and id is 1 raw text is: Aligning Incentives: Finding a Better Way Forward with Special Purpose Acquisition Companies Reid William Schreck I. INTRODUCTION Special purpose acquisition companies (SPACs) first began to emerge in the 1990s as an alternative means to conduct an initial public offering (IPO) and take private companies public.' With the rapid increase in popularity of SPACs in 2020 and early 2021, and with many politicians and mainstream celebrities trying to get a piece of the SPAC action, it has become far more important to evaluate carefully the merits and potential drawbacks of this process. This Article focuses primarily on addressing one key question: Are public investors who sign on to SPACs adequately protected by the current legal and regulatory frameworks, and, if not, what changes ought to be made going forward to help ensure they are? Although SPACs may be seen as an appealing alternative pathway for raising financial capital and bringing companies public, the diverging interests between the major parties to a SPAC venture and the lack of adequate checks on a SPAC's decision to proceed once it has identified a promising private company (the Target Company) are likely leaving some unsophisticated investors insufficiently protected within the current framework of limited disclosures and information asymmetries. This Article suggests that by altering the compensation structure for the sophisticated investor or management team that forms a SPAC (the Sponsor), the Sponsor's financial interests can be more closely aligned with that of the other investors. Achieving this should leave the Sponsor in a well-suited position, and with adequate financial incentive, to conduct meaningful due diligence on Target Companies that will better protect unsophisticated investors in SPACs. II. ANALYSIS A. What are Special Purpose Acquisition Companies? A special purpose acquisition company is a shell corporation that is formed for the sole purpose of raising capital through an IPO and using that capital to merge 1 Special Purpose Acquisition Companies, Shell Companies, and Projections, 86 Fed. Reg. 29458 (proposed Mar. 30, 2022) (to be codified at 17 C.F.R. at pt. 210, 229, 230, 232, 239, 240, 249, 270). 1