Herrick partner Shivani Poddar and associate Heather Zimmer wrote a piece for Bloomberg Law on special purpose acquisition companies (SPACs) and strategies to minimize the risk of potential litigation.
"SPACs can be more efficient than traditional IPOs, costing less money and time," they wrote, adding that "[b]ecause SPACs are shell companies without a track record, investors must rely on the Sponsor's reputation and experience. The investment can be risky because investors do not know the identity of the Target at the outset of their investment."
The pair outlined several risks and measures in the paper:
- Adequate Disclosures Must Be Provided
- Disclosure of Shareholder Rights in the Certificate of Incorporation
- Material Information In Proxy Statements
- Necessary Diligence for SPAC Signatories
- Necessary Warning for Valuations
- Related-Party Transactions
- Assessment of Appraisal Rights
They concluded, "While SPACs provide a new avenue for investment and a unique asset class, they also present litigation risk that must be considered by all players."
Read the full piece in Bloomberg Law here. Access requires a subscription.
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