Sunday , September 19, 2021

A Reported SEC Probe Casts a Spotlight on the Fast-Growing SPAC Trend

News late Wednesday that the U.S. Securities and Exchange Commission is inquiring into a newly popular alternative for going public comes as payments firms increasingly turn to the method in lieu of a traditional public offering.

Reuters reported late Thursday the SEC is contacting Wall Street financial institutions to ask about their activities involving blank-check firms. These so-called SPACs—special purpose acquisition companies—have acquired or announced deals with at least half a dozen payments firms since July 2019, with the largest deal involving a $9-billion acquisition of Paysafe Group expected to close this month. The most recent target is Payoneer Inc., which announced its $3.3-billion SPAC merger last month.

Citing four unnamed people “with direct knowledge of the matter” as sources for its story, the Reuters report said two of the sources indicated the SEC asked the banks to supply information voluntarily. One of the two, however, said the letters came from the agency’s enforcement division. The SEC could be concerned about the extent of due diligence conducted by SPACs and also about whether alleged “huge payouts” are clearly disclosed to investors, the report said, citing one of the sources. The inquiry asks about deal fees, volumes, and how banks are policing deals, according to one of the sources.

Photo by Rick Tap on Unsplash

Contacted by Digital Transactions News, the agency refused to comment on the matter.

SPACs have gained popularity as an allegedly faster and smoother road to public ownership than the method available in a conventional IPO. In a SPAC deal, a firm specially created for the purpose conducts an IPO and then buys a privately held entity. The trend has gained huge momentum in recent years, with 296 SPAC IPOs having already occurred this year as of Thursday, 48 more than took place all of last year and five times the number in 2019, according to SpacResearch.com. 

At least nine SPAC deals have involved payments firms, with one of the the earliest taking place in 2012 and involving the payments processor JetPay. Besides Paysafe and Payoneer, firms such as Billtrust, Social Finance, Paya, and Repay Holdings have merged with SPAC entities just since the summer of 2019. Social Finance owns the payments-technology firm Galileo Processing.

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