SPACs: An M&A Overview, Trends, and Beating the Competition

Special Purpose Acquisition Companies (SPACs), also known as “blank check companies,” were a driving force of growth in the U.S. IPO market during 2020, but will the growth continue? SS&C Intralinks sponsored a webinar last month for Divestopedia, a middle-market M&A education site, titled SPACs: An M&A Overview, Trends and Beating the Competition.  

Panelists included:

• Brian Hwang, Director of Strategic Business & Corporate Development, SS&C Intralinks (Moderator)
• Nina Kelleher, Director, EisnerAmper
• Andrew Sherman, Partner, Seyfarth Shaw
• Justin Burchett, Managing Director, Stout

Here are a few topics discussed:

Benefits of a SPAC IPO Versus a Traditional Route

• SPACs, with a timeline of 18-24 months to find and acquire a target, offer an expedited route for private company targets to go public as opposed to the traditional IPO route.
• The SPAC process starts with the formation and submission to the SEC for IPO approval. Upon approval, the SPAC identifies a target company to acquire. Once a target company is established and an end agreement is created, investors and shareholders hold a vote for approval. If the vote is approved, the merger or “de-SPAC” is accomplished.

Considerations from Tax, Legal, and Financial Perspectives in Forming a SPAC

• Most SPAC targets face challenges to remain in compliance with the laws and regulations, given the expedient timing. For example, the creation of governance and internal controls are vital in preparation with going public, and take considerable time to develop.
• With the traditional IPO route, governance and internal controls are structured-in-place prior to going public, and are designed to withstand public scrutiny and to comply with Sarbanes-Oxley (SOX), the federal law that obligates the company to develop a financial reporting control framework.

Methods for SPACs To Stay Competitive

• Essentially, the private company, the SPAC target, must be operating as a public company before they plan to go public.
• The financials should be in place from an audit perspective. The private company should also have implemented a proper compliance and governance structure.
• The private companies must prove historical performance to demonstrate structure and financial results that can withstand the scrutiny from being a public company.
• The SPAC is looking for a target company that is ‘plug-and-play’ ready to go public. If the target company shows they are not ready to go public, the SPAC will move on to the next company.

What Lies Ahead for SPACs?

• The SPAC route offers companies an expedited process to going public and the access to capital which may continue in the near-term.
• As new regulations are enacted, the marketplace for SPACs may slow, but will still remain a viable option.

The Webinar can be viewed here.