What Technology and Life Sciences Companies Need to Know about being Acquired by a SPAC

April 22, 2022

Becoming a public company through an acquisition by a SPAC is an alternative to the traditional initial public offering (IPO). In this video, you’ll learn some key considerations that a technology or life sciences company should keep in mind before being acquired by a SPAC.


Transcript

Nina Kelleher: Hi I’m Nina Kelleher, Eisner’s National Leader for Special Purpose Acquisition Companies otherwise known as SPAC Services and a Director in EisnerAmper Digital focusing on risk advisory services and business process optimization.

Becoming a public company through an acquisition by a SPAC has increased in popularity over the last two years as an alternative to the traditional initial public offering (IPO) route.  With over 300 sponsors that have filed with the SEC for an IPO and more than another 500 SPACs searching for a target or waiting to complete a transaction, it’s no wonder I receive a lot of inquiries from tech and life sciences companies about how they can best be positioned to be a acquired by a SPAC. 

Oftentimes, when I’m called in for advice, I start by asking if their company is ready to operate as a publicly traded company.  If the answer is no, then there is still some work to be done before the company is ready to go public via a SPAC.

What I find there is often a misconception in the marketplace by target companies wanting to tap capital markets through a SPAC in that the target company doesn’t have to be as mature or go through the same regulatory requirements than it would the traditional IPO route or direct listing.  This just isn’t the case.  The target company would still need to gain approval from regulators.  Once the de-SPAC process is completed, the company will be publicly traded and the route to get there, whether a traditional IPO, SPAC or direct listing, the regulations on a publicly traded company are the same. 

It is true that the timeline to go public via a SPAC is typically shorter with than the traditional IPO route, so with that, it is critical that the target company can show the sponsor they are essentially operating like a public company. 

Let’s go over some key considerations that a tech or life Science company that wants to be acquired by a SPAC should keep in mind.

Accounting and Tax Considerations:

  • Are my tax and accounting departments adequately prepared for the transition to a public company?
  • Do relevant personnel maintain the competence to apply and adhere to more complex accounting standards?
  • Do my current policies and procedures account for highly scrutinized areas such as revenue recognition, lease accounting, and equity-based compensation?

Financial Statement Preparation:

Assessing the financial statement preparation procedures of a target company is one piece of the financial health puzzle.

The items I encourage companies to think about are:

  • Are my company’s financial statements prepared in compliance with U.S. Securities and Exchange Commission (SEC) reporting requirements?
  • Do my company’s financial statements include the required level of disclosures, footnotes, management discussion and analysis (MD&A), etc.?
  • Is my company prepared to develop pro forma financial information in accordance with the future SPAC transaction?

Compliance with Required Filings and Registrations:

Once public, there is a whole new set of acronyms to learn: AICPA, PCAOB, and SEC, Converting audit standards and considering various independence rules can be a challenge.

Some questions to consider include:

  • Have we converted the audit of our financial statements from under the AICPA standards to under PCAOB standards?
  • Is our auditor a PCAOB-registered public accounting firm that is independent under the SEC and PCAOB independence rules?
  • Is my company prepared to complete the necessary registration statements?

Internal Controls and Sarbanes-Oxley (SOX) Compliance:

Companies will need to assess their internal control environment and the ability to comply with SOX requirements. I encourage companies to try answering these questions, among others, regarding internal controls to better evaluate their readiness.

Some questions to consider include:

  • Are policies and procedures for key areas of my business related to financial reporting formally documented and reviewed periodically?
  • Has management established clear lines of reporting and an effective tone at the top? 
  • Are periodic assessments performed to identify risks relevant to my organization’s achievement of objectives?

Lastly, Cybersecurity and Information Technology

There’s so much here for companies to consider, but at the core, having a sound IT infrastructure that has the ability to scale with the expected growth as a result of the newly injected capital from going public is paramount along with a robust cybersecurity posture.

These are just a few of the key areas that tech and life Sciences companies should focus when assessing their readiness to go public via a SPAC.

To learn more, visit our SPACs Knowledge Center or start a conversation with us.

About Nina Kelleher

Nina Kelleher is the National Leader for Risk Advisory services and is a Financial Services industry subject matter expert with over 15 years’ experience.


More in This Series

Startups: Tax Implications of Hiring Independent Contractors vs. Employees

In this video, you’ll learn about the three worker classification tests, filing requirements, and more in order to make an accurate worker classification/determination and avoid possible tax and legal exposure.

Cybersecurity Risks and Solutions for Life Sciences Startups

Cybersecurity poses a significant risk to life sciences startups that handle personal identifiable information. In this video, you’ll learn about the risks facing your business and how you can protect your clients and systems.

When Do I Need to Get an IRC Sec. 409A Valuation for My Stock Options or Stock Grants?

A 409A valuation is used by private companies to assess the fair market value of their stock. In this video, you’ll learn when a 409A valuation is necessary, the length of time in which it is valid, and which events trigger the need for an update

Capital Raising: What Are My Options—and How Do I Approach Investors?

In this video, you’ll learn about various options for raising capital, tips for creating your potential investor list, and how to approach investors.

Going Global: How to Report Your Foreign Operations for Tax Purposes

In this video, we’ll examine why reporting on foreign operations for tax purposes is an important matter for technology and life sciences start-ups doing business abroad.

What Tax Considerations Does My IPO Trigger?

Is your company preparing for (or have you recently had) an IPO? In this video, you’ll learn about the impact that an ownership change under IRC Sec. 382 can have on the utilization of net operating loss (NOL) carryovers and other factors that can influence your tax burden.

Medical Device Companies: Consideration for Consignment Inventory and Related Sales Process

Many medical device companies have chosen to deploy a consignment inventory and sales approach for their related products. In this video, you’ll learn about the advantages and disadvantages of this strategy for both the company and third parties, as well as best practices to consider

What Technology and Life Sciences Companies Need to Know About Transfer Pricing—from Start-ups to Large MNEs

In this video, you will learn why transfer pricing is an important focus point for many multinational enterprises in the technology and life science industry.

Capital Raising: Are Financial Instruments Classified as Liabilities or Equity?

In this video, you'll learn about the different accounting ramifications for financial instruments issued to investors by start-ups and why it’s important to properly structure financial instruments upfront for accounting purposes.

Financing for Entrepreneurs: What Are Issuance Costs?

In this video, you’ll learn about “issuance costs” and how to properly account for them based on the type of funding that was raised.

Does My Start-up Need an Advisory Board?

In this video, you'll examine the ways how an advisory board differs from a board of directors; why you might consider forming an advisory board; how you can attract and retain advisory board members; and how you can enhance the effectiveness of the advisory board for your start-up.

What Technology and Life Sciences Companies Need to Know About SOC 1 Reports

Brenda DeSaro explains what a SOC 1 Report is, discusses why companies need to be concerned about these reports even though they likely outsource this work to third-party providers, and outlines a best practices approach.

Entrepreneurship: Behind the Numbers

John Pennett talks about the ingredients for successful entrepreneurship—from early to late-stage enterprises—with “Behind the Numbers” host and senior director at CFGI.