Confident financial projections are common in SPAC deals and have been a decisive factor in attracting firms regarded as more risky, often loss-making and years away from even having any sales, over IPOs as a route to going public, Reuters reports, citing industry insiders and the news organization’s review of data compiled by Jay Ritter, a professor at the University of Florida.
This is because IPOs are excluded from U.S. securities regulations which shield companies against investor lawsuits for making financial estimates they do not meet.
SPACs are given this protection, so lawsuits against companies going public have to clear a higher hurdle of showing malfeasance or negligence in the making of the projections.
Companies have taken advantage, opting for SPACs even though the lucrative stock compensation of SPAC managers leaves their existing shareholders with less equity, making them almost three times as costly than IPOs, investors and investment bankers say. Read more.
