The financial press is already reporting that many of the nearly 600 SPACs currently searching for merger targets may be unable to find suitable merger targets. Indeed, famous investor Bill Ackerman, unable to find a suitable merger target for his largest-ever SPAC, Pershing Square Tontine Holdings, has already thrown in the towel and liquidated the $4 billion SPAC. With hundreds of SPACs facing the end of their search period in this and the next two quarters, there are likely to be many other SPACs that choose to liquidate in the coming months.

One question I have had about this likelihood is whether or not there is a risk of litigation as SPACs redeem investors’ shares. On the one hand, litigation seemingly should be unlikely as investors are getting their money back. Where’s the harm? On the other hand, in our litigious society, the possibility of litigation always seems to be lurking whenever things don’t work out as planned. While the circumstances involved are very case-specific, a lawsuit filed last week in the Delaware Chancery Court, provides of an example of the kind of end-game squabble that could arise as more SPACs liquidate in the coming months.
Continue Reading SPAC Unable to Find Merger Target Caught Up in Pre-Liquidation Litigation

According to the latest statistics from SPACInsider, there are currently over 580 SPACs seeking merger partners. Financial media reports have already speculated that many of the searching SPACs may not find a suitable merger partner within the applicable search period. One concern from this combination of circumstances is that some SPACs may feel pressure to do whatever they have to do to complete a deal, any deal. As I have noted in prior posts, deals completed under these kinds of circumstances can later subject the SPAC managers to scrutiny and perhaps even litigation.

In a Delaware Chancery Court lawsuit brought by former public shareholders of a SPAC against the former directors and officers of the SPAC and others alleging that the SPAC officials, in their push to complete a deal, misrepresented the target company as a U.S.-based manufacturer of electric vehicles, when, the plaintiff shareholders allege, the company was in fact just a vehicle dealer that buys Chinese electric vehicles that the company rebrands as its own. As discussed below, this new lawsuit may illustrate one of the kinds of circumstances in which many of the currently searching SPACs could fall.
Continue Reading SPAC Execs Allegedly Misrepresented Target Company’s Business to Complete Deal

One of the biggest stories in the financial world for the last 18-24 months has been the astonishing surge in SPAC-related activity. Some readers will recall that in the midst of the SPAC ballyhoo, three academics had sounded a serious note of caution. In their conspicuous November 2020 paper, “A Sober Look at SPACs” (here), Stanford Law Professor Michael Klausner, NYU Law Professor Michael Ohlrogge, and Stanford Research Associate Emily Ruan warned, among other things, that SPAC shares were highly diluted, that their post-SPAC-merger performance was poor, and that sponsors’ returns were extraordinarily high.

Critics at the time suggested that the academics’ research was out of date, and that later SPACs addressed the concerns the authors noted in their  data set from an earlier time period. In response to the criticisms, the authors have now updated their earlier paper and published their research results in a January 24, 2022 post on the Harvard Law School Forum on Corporate Governance entitled “A Second Look at SPACs: Is This Time Different?” (here). As detailed below, the authors conclude, based on their review of more recent SPAC transactions, that, contrary to the assertion of SPAC defenders, “this time is not different,” and that “SPACs remain highly diluted, and their returns remain poor.”

And in a separate paper that provides additional interesting reading about de-SPAC transactions, on January 24, 2022, the Freshfields law firm published a statistical analysis of 2021 de-SPACs entitled “2021 De-SPAC Debrief” (here), which, as also discussed below, provides an abundance of additional  information.
Continue Reading SPACs and De-SPACs: Just the Facts