De-SPAC Projections: SEC Rules on Forward-Looking Claims

De-SPAC projections are the financial forecasts shared with investors when a private company goes public by merging into a special purpose acquisition company. Under the SEC's final SPAC rules, adopted on January 24, 2024 and effective July 1, 2024, the PSLRA safe harbor is unavailable for those projections in registration statements, and the target company must disclose the bases and assumptions behind them.

What did the SEC change for SPAC projections?

The SEC amended the definition of blank check company under the Private Securities Litigation Reform Act so that the safe harbor for forward-looking statements no longer covers projections in registration statements for business combinations involving SPACs. Mintz and the National Law Review describe the change in those terms, and the rules took effect on July 1, 2024.

The SEC adopted the rules on January 24, 2024 by a 3-2 vote, according to Kirkland. Kirkland also noted that the loss of the safe harbor does not apply retroactively to forward-looking statements made before the effective date.

The change reflects a premise stated in the rules. A law firm summary says the SEC views a de-SPAC transaction as the functional equivalent of the private target's initial public offering and wants it regulated that way. In traditional IPOs, the safe harbor is not available either, so the rules align the two paths.

What must a de-SPAC projection disclosure include?

A de-SPAC projection disclosure must state the purpose of the projections, who prepared them, the material bases and assumptions behind them, and whether they still reflect the view of the SPAC or target as of the date of each filing. Mintz and the National Law Review summarize those requirements.

The disclosure must also include any material factors that may cause the assumptions to change, according to Deloitte's summary. The SEC adopted guidance on projections too, according to the National Law Review, including that a projection based on historical results should present the historical measure with equal or greater prominence and define any measure used.

These requirements turn a forecast from a marketing slide into a documented analysis. The company should be able to show, for each number, the assumption behind it, the person who prepared it, and the date on which management last confirmed it. The practical effect is that every number needs a stated basis.

Kirkland's commentary adds two points. It notes that forward-looking statements in many de-SPAC registration statements were already outside the safe harbor because of how those deals are structured, so the change formalized an existing risk. It also says the judicial bespeaks caution doctrine remains potentially available to SPACs depending on the facts and circumstances, which is another reason cautionary language still matters.

Why must the target company co-register?

The target company must co-register because the SEC treats the de-SPAC transaction as a sale of the target's securities to the SPAC's shareholders. Deloitte says new Rule 145a makes the target, including its principal executive officers and directors, a co-registrant with liability under Sections 11 and 12 of the Securities Act for untrue statements or material omissions.

A Mondaq summary adds that the target's principal executive officer, principal financial officer, principal accounting officer and at least a majority of its board must sign the registration statement. The SEC noted that most of the disclosure in a de-SPAC registration statement concerns the target.

For communications teams, co-registrant status means the target's own executives answer for the projections. A forecast prepared by the SPAC sponsor or a banker no longer separates the target from the statement.

Can SPACs still publish projections?

SPACs can still furnish target projections in de-SPAC filings, but they must comply with the enhanced disclosure requirements without the safe harbor. A CBIZ summary of the final rules says that point directly.

The SEC's reasoning reflected concern about the quality of earlier forecasts. A Mondaq UK summary quotes the SEC's worry that SPACs are rife with disclosures that border on or cross into outright fraud. That is a statement of concern in the rulemaking, not a finding about any company.

The rules have drawn challenge arguments. The same Mondaq summary says several commentators complained that the SEC lacks authority to amend the legislative definition of blank check company, and that this part of the rules could face a legal challenge. Companies should confirm the current status of the rules with counsel before relying on this article.

What should an IR team do with projections after the rules?

An IR team should treat every projection shown to investors as if it were in the registration statement. Legal counsel should review each projection before release.

• Keep one master projection document with its purpose, preparer, assumptions and date, and make every deck, release and script match it.

• Record who approved each projection and when management last confirmed that it still reflects its view.

• Do not introduce new numbers in interviews, social posts or investor calls that are not in the filed document.

• Update or withdraw a projection when assumptions change, and say so in the next filing.

• Avoid sector hype. Cleantech and EV companies that went public through a SPAC merger should tie capacity or delivery forecasts to named assumptions such as permits, supply contracts and financing.

The Regulation FD guide for investor relations explains who may speak about numbers once the company is public, and the guide to earnings release Form 8-K filings explains how numbers move through a filing.

What does a clean projection disclosure look like?

A clean projection disclosure names its assumptions and its date so a reader can test it. In a hypothetical scenario, a battery-materials company projects revenue for year three. A weak disclosure gives only the number and a growth rate.

A strong disclosure states that management prepared the figure for the board in a specified month, assumes a named supply contract and permit date, and notes the figure was last confirmed as of the filing date. This approach gives investors verifiable details and gives the company a record if a permit slips.

The record matters most when a company misses a projection. A company that documented its assumptions, confirmed them at each filing, and updated them when facts changed can show regulators, investors, and a court how its view developed. A company that kept only a presentation slide leaves an incomplete record.

Small companies that list through unconventional routes can start with the overview of small-cap investor relations programs, and the investor relations services page outlines support for public companies.

Frequently asked questions

What is a de-SPAC transaction?

A de-SPAC transaction is the merger in which a SPAC combines with a private operating company, which takes on the SPAC's stock exchange listing and becomes a public company.

Does the PSLRA safe harbor apply to SPAC projections?

The SEC's 2024 rules amended the blank check company definition so the PSLRA safe harbor is unavailable for projections in SPAC business combination registration statements, with effect from July 1, 2024 and no retroactive application.

Does protection remain for SPAC forward-looking statements?

Kirkland's commentary says the bespeaks caution doctrine remains potentially available to SPACs based on facts and circumstances, even though the PSLRA safe harbor is not. Counsel should assess how it applies to a specific projection.

Is the target company liable for de-SPAC disclosures?

The target company is a co-registrant under Rule 145a, so it and its officers and directors face liability under Sections 11 and 12 of the Securities Act for untrue statements or material omissions, according to Deloitte.

Can a SPAC still show projections to investors?

A SPAC can still furnish projections in de-SPAC filings, but it must meet enhanced disclosure requirements about their purpose, preparer, bases and assumptions, without the PSLRA safe harbor.