SPACs process and preparation
Q Why are special-purpose acquisition companies (SPACs) so popular right now?
A Mitigating the pricing risk of traditional initial public offerings (IPOs) — especially at a time when the COVID-19 pandemic has fueled volatility — is part of what’s driving seasoned investors and management teams to flock to SPACs. Several records were set last year, including the highest number of SPAC IPOs and the highest amount of SPAC proceeds raised. Just three months into 2021, the gross proceeds raised in 2021 has exceeded the gross proceeds raised in 2020, according to SPACInsider. This market volatility, combined with the arrival of seasoned sponsors and management teams, has created a modern-day SPAC revolution.
Q What are the key considerations for going public with a SPAC?
A It is essential for entities to (1) have an understanding of the underlying economics of these investment vehicles; (2) develop a comprehensive project management plan to meet the demands of an accelerated merger timeline; and (3) engage trusted advisers with significant SPAC experience. The financial reporting requirements for a target in a SPAC merger are voluminous and must be completed in a compressed timeline leading up to the proxy/Form S-4 filing. The reporting requirements include preparation of PCAOB-audited annual financial statements that comply with SEC rules, reviewed interim financial statements, pro forma financial information, management discussion and analysis (MD&A), market risk disclosures, and other nonfinancial information.
Q What happens after the SPAC transaction is completed?
A The SPAC process involves many of the same hurdles as in a traditional IPO, but the target company’s management must remain focused on executing the transaction first before tackling post-SPAC processes. Therefore, management of the target company must shift gears to focus on quickly maturing into a publicly traded company. A post-SPAC company must be ready with certain filings, processes, and policies in place prior to the completion of the merger. The company must also report accurate financials on time — depending on filing status, this could be in as few as 40 days after the end of its most recent financial quarter and 60 days after its fiscal year end.
Will Braeutigam is an Audit & Assurance partner at Deloitte & Touche LLP and leads Deloitte’s Central Region IPO and SPAC Execution Group for the Accounting, Reporting, and Advisory practice. He has extensive private-equity experience, including advising companies regarding public exit strategies. He also has extensive experience leading IPO and SPAC engagements, including advising on reverse mergers, recapitalisations, UP-C structures, and SEC preclearance filings.
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