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SPACs seeking to complete a merger with a private target (a “de-SPAC”) should begin to consider alternate avenues for structuring their business combinations, including flipping the script by making the target the legal acquirer in the transaction.

SPACs generally qualify as emerging growth companies since they are blank-check companies without business operations and revenues under $1.07 billion. As such, under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), emerging growth companies may file confidential registration statements with the Securities and Exchange Commission (the “SEC”) as many times as they would like.  However, since the SPAC is traditionally the legal acquirer in a de-SPAC, the business combination and its announcement via a proxy/prospectus on Form S-4 (or Form F-4 for foreign issuers) do not qualify as a registration statement, and registrants are left with only one bite at the confidential filing apple.

Recent SEC staff practice has illustrated a potential solution to this problem:  structuring transactions so that the target company becomes the acquirer in the business combination. The SEC has treated proxy/prospectuses that are filed by the target—who is operating as the legal acquirer—as if they are registration statements because the target has no prior-issued securities which are traded on a capital market. As such, these target acquirers may file additional confidential filings.

This alternative path offers a unique advantage for SPACs seeking to shield the terms of their combination, and the details of the target business, from public scrutiny. It also buys time for filings, so that the SEC can review accounting methods and business disclosures in advance of a public filing.

As SPACs have been increasingly attracted to technology and fintech-based companies—whose agreements and strategic plans may be more sensitive to their competitors—this option creates greater flexibility for the SPAC and the target to tailor their filing to protect as much confidential information as possible. It also gives the target time to test their accounting practices before public exposure.

SPACs seeking to combine with a prospective target should consider how they should structure their transaction and whether the increased flexibility that additional confidential filings afford could add value to a transaction. This is a new practice within the de-SPAC space, and few companies have taken advantage of this alternative method of structuring their business combinations. However, as more SPACs combine with targets over the next year, there could be increased use of this transactional structure.

Mike Blankenship

Houston Managing Partner at Winston & Strawn LLP

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