TAMPA, Fla. — New accounting rules have thrown a wrench into a SPAC machine that has been catapulting space companies to the public markets.

Changing guidance from the U.S. Securities and Exchange Commission (SEC) are adding complexities, and delays, for SPACs (special-purpose acquisition companies) that merge with businesses after listing on the public market.

The changes laid out by the financial regulatory agency mean that warrants, which give investors the option to buy shares at specific prices in the future, need to be classified as liabilities instead of equity instruments in a company’s accounting books.

It is already prompting some space companies to redo paperwork, clogging up accountancy firms that are being overwhelmed by filings from other sectors.

There has also been a noticeable drop in new SPACs, sometimes called blank check companies, since the SEC unveiled the guidance April 12.

Only around 10 deals have been issued so far in April compared with more than 100 in March, according to news reports citing data from SPAC Research.

Uncertainty around the rules is also causing headaches for SPACs that have already merged with their target company, because the changes affect some more than others.

“Importantly, this is not specific to any one SPAC, but all SPACs,” said an official for launch company Rocket Lab, which is merging with the Vector Acquisition Corp. SPAC to help develop a medium-class vehicle.

“We are working with our auditors and advisors and will communicate any changes in due course, but we have nothing to update at this present juncture,” the Rocket Lab official said.

Other space companies that are working toward closing SPAC mergers include Redwire, Astra, BlackSky, Spire and Momentus.

The possibility of delays also adds pressure on SPAC companies that have listed on a public market but are still hunting for a suitable acquisition. 

SPACs have to find a deal within a certain period, usually two years, or return to shareholders the money they have raised through their public listing.

“We’re still assessing at this time,” said an official for New Vista Acquisition Corp., which has two years to find a target after listing on the Nasdaq stock exchange Feb. 19.

New Vista, led by former Boeing CEO Dennis Muilenburg, is concentrating its acquisition search on companies in space-based communications and defense, as well as advanced air mobility, transportation and logistics industries. 

Space-focused blank check companies looking to list on the public markets include Space Acquisition I, which is co-led by venture capital firm E2MC founder Raphael Roettgen, and CEA Space Partners I Corp, led by former SES Americom CEO Edward Horowitz.

It is unclear what the potential for delays means for in-space transportation company Momentus, which is working on completing a merger with a SPAC called Stable Road Acquisition Corp.

Stable Road has until May 13 to finalize the deal, but is asking shareholders to approve a three-month extension as government reviews of the transaction drag on. A shareholder meeting has been scheduled for May 6 to vote on the extension.

Momentus did not respond to a request for comment.

A matter of perception

SPAC accounting rule changes to classify warrants as liabilities affect companies across all industries.

However, they could add more perceived risk for space ventures, which — with their usual wait times to generate significant revenues — are already seen as on the riskier end of the market, according to Micah Walter-Range, president and partner of consultancy firm Caelus Partners.

“Space companies are still viewed as incredibly risky and going public does not change that perception,” said Walter-Range, who created the underlying index for the Procure Space exchange-traded fund (ETF).

He said markets are still figuring out whether to perceive this accounting change as adding more risk to the long-term survival of space companies.

Others point to the long history of warrants being used in the financial markets, meaning they are understood by most investors regardless of how they are classified for accounting purposes.

However, more scrutiny for SPACs in general could help cool the once red-hot market even after there is clarity over what these accounting changes mean for businesses, impacting space companies that had been thinking about hopping on the bandwagon.

Jason Rainbow writes about satellite telecom, space finance and commercial markets for SpaceNews. He has spent more than a decade covering the global space industry as a business journalist. Previously, he was Group Editor-in-Chief for Finance Information...