SEC tightens equity accounting rules for SPACs
The US Securities and Exchange Commission (SEC) has told top auditors of SPACs to account more strictly for public shares in these companies, according to multiple industry accountants and lawyers familiar with the change. SEC staff have privately told top auditors of Spacs that “redeemable” shares issued by these shells must be treated as temporary — known as “mezzanine” — equity, in a break from the long-standing industry practice of treating them as permanent equity.
The change will cause most Spacs to fall below the minimum equity capital requirement of Nasdaq’s Capital Market tier, pushing those looking to list on Nasdaq to its Global Market tier, which has no equity requirement.
The development marks the second time in 2021 that the SEC has tightened Spac accounting guidance and is the latest salvo in the agency’s broader crackdown on the Spac deals market, a booming business for Wall Street over the past 18 months. While the long-term implications of the change in listing status for Spacs in the pipeline are unclear, some industry attorneys and auditors said it is another worrying sign that the SEC is looking for ways to upend long-standing practices in the market.
A Nasdaq spokesperson confirmed that the accounting change has forced Spacs to switch their planned listings from its Capital Market to its Global Market. While the SEC’s new stance is unlikely to be as disruptive for the Spac industry as its April guidance, it is creating a headache for Nasdaq. Spacs have traditionally listed on its Capital Market, which is generally for companies focused on capital raising and which has minimum capital requirements.