As an army of blank-check companies gathered $250 billion on their march to public stock markets over the past two years, banks handling the fundraisings earned windfalls and lavished star dealmakers with some of their firm’s largest bonuses, Bloomberg reports.
But this year, many of those SPACs are struggling to seal the deals that are their reason for being — merging with private companies. And this month, top banks including Goldman Sachs Group Inc. and Bank of America Corp. pulled back from helping them hunt for targets.
The problem: US regulators proposed holding banks liable if the SPACs or their businesses mislead investors.
Behind the scenes, Wall Streeters are hastily reevaluating one of their most lucrative activities in recent years. Some are concluding that helping a SPAC stage an initial public offering and later merge with a private company is poised to become too complex and risky, potentially creating massive liabilities. As frustrated bankers see it, they’re essentially being told to follow the rules for IPOs and mergers simultaneously, while the government makes it easier for shareholders to sue if deals don’t work out.
“The magnitude of the exposure could be potentially enormous,” said Howard Suskin, co-chair of Jenner & Block’s securities litigation and enforcement practice. “All the plaintiffs have to show is that there was something incorrect that was said in the offering documents.” Read more.
