The Weekend Australian

Regulator warns on SPAC valuations

- DAVE MICHAELS ELIOT BROWN

A US regulator has warned companies going public through deals with special-purpose acquisitio­n companies against issuing misleading statements about their growth.

The statement by John Coates, an acting director at the Securities and Exchange Commission, is a shot at the frenzy over SPACs and how their growth has enabled many startups to go public at an early stage. Some of the public companies that result from the merger, including electric vehicle start-ups, have then touted plans to reach billions of dollars in sales within a few years.

SPACs are publicly traded shell companies formed to pursue deals. They have become a hot alternativ­e to initial public offerings, the traditiona­l way that private companies list shares for public trading. Companies doing IPOs don’t broadcast future sales or earnings estimates in their key filings.

Sales projection­s are helpful for zero-revenue companies going public through a SPAC, as they have a short track record to show investors in an IPO.

At least 15 companies with no revenue have listed publicly this year or have said they hope to in coming months, all at valuations of above $US1bn ($1.3bn). That would be by far the largest number of non-biotech listings above $US1bn in valuation since the dotcom boom, according to data from Jay Ritter, a finance professor at the University of Florida who studies stock listings.

Even new products in unproven markets are able to raise enormous sums in SPAC deals. Three electric aircraft companies have struck deals to go public in recent months, including Joby Aviation and Archer Aviation, which are building helicopter­like electric vehicles marketed as future flying taxi services. Both have struck deals to raise over $US1bn as part of SPAC listing.

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