Goldman Sachs cuts SPAC business amid regulatory crackdown and market turmoil

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City on May 9, 2022.

Brendan McDermid | Reuters

Goldman Sachs is scaling back business in once-hot SPACs as blank check deals have been caught in a double whammy of regulatory repression and a tough market environment.

“We are reducing our involvement in the SPAC business in response to the changing regulatory environment,” Goldman spokeswoman Maeve DuVally told CNBC.

Bloomberg News first reported on Goldman’s moves earlier Monday. The outlet reported that Goldman was ending its involvement with some sponsors, while suspending new shows, citing people familiar with the matter.

The Securities and Exchange Commission introduced a host of new rules for SPACs in March that would mark one of the most sweeping attempts yet to crack down on blank check companies. The proposed rules would change safe harbor rules and leave SPACs open to lawsuits from investors if they felt the estimates were extremely rosy.

The so-called safe harbor protection allows some blank check companies to make optimistic forward-looking statements about the companies they plan to merge with.

“Part of the attractiveness of the SPAC market and what differentiates SPACs from IPOs is the protection of the safe harbor,” said Perrie Weiner, partner at Baker McKenzie LLP.

“You usually don’t go public with a M&A of-SPAC if you’re a long-established company with a long history of earnings. It’s usually a younger company that doesn’t quite have the same historical but has a lot of promise for the future,” Weiner said. “The SEC is trying to limit that. From an underwriter’s perspective, the big guys are going to be a little more concerned with downside protection to avoid liability.”

Meanwhile, SPACs – which are often speculative stocks with little profit – have been crushed this year in the face of rising rates as well as high market volatility. CNBC’s proprietary SPAC Post Deal Index, which is made up of SPACs that have completed their mergers and made their target companies public, has fallen more than 40% year-to-date.

“SPACs” is short for special purpose acquisition companies, which raise capital in an initial public offering and use the money to merge with a private company and take it public, usually within two years.

After a year of skyrocketing emissions in 2021, there are now more than 600 SPACs looking for an acquisition target, according to SPAC Research. As the market environment became difficult, some announced transactions did not go through. Many sponsors have been forced to drop their proposed deals, sometimes even before SPACs were listed.

Goldman Sachs cuts SPAC business amid regulatory crackdown and market turmoil

Source link Goldman Sachs cuts SPAC business amid regulatory crackdown and market turmoil

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