Special Purpose Acquisition Company (SPAC)

A special purpose acquisition company (SPAC), sometimes called blank-check company, is a shell company that has no operations but plans to go public with the intention of acquiring or merging with a company with the proceeds of the SPAC’s initial public offering (IPO).

Utilizing a SPAC has increased in recent years; 2019 had a record high of over 13B IPO fundraising activity and their popularity is increasing.  According to Forbes over 90% of SPAC IPOs result in a business combination and in 2019 over $13B was raised in gross proceeds from 59 IPOs with an average IPO size of $230M.  In 2020 as of July 9, over $12.4B in gross proceeds have been raised, from 39 IPOs with an average IPO size of $317M.

The CFO Suite can help you get through this time when you might need that additional capability or capacity for your team. 

Here’s how we can help:

  • Identify, understand, and prepare the wide range of SEC requirements such as 8-K’s, 10-Q’s, 10-K’s, registration and proxy statement filings
  • Review, determine, and implement necessary changes over internal controls to ensure compliance with SEC and FASB accounting and financial reporting standards
  • Evaluate and improve financial processes that will accurately and efficiently prepare financial statements in the new public environment
  • Develop an internal control framework including a corporate governance structure
  • Evaluate the operating structure and system capabilities pre and post capital expansion, design and test updates, record accounting impacts
  • Determine whether existing staff have the experience and bandwidth for future needs and if not, develop a staffing plan and execute the direct-hire strategy

More about a SPAC

By market convention, 85% to 100% of the proceeds raised in the IPO for the SPAC are held in trust to be used at a later date for a merger or acquisition. A SPAC’s trust account can only be accessed to fund a shareholder-approved business combination or to return capital to public shareholders at a charter extension or business combination approval meeting.   In order to allow stockholders of the SPAC to make an informed decision on whether they wish to approve any business combination, full disclosure of the target business, including complete audited financials, and terms of the proposed business combination are made available via an SEC merger proxy statement.  Among other benefits, there is no requirement to disclose historical financial information or assets in future SEC filings. 

Some notable recently completed SPAC transactions include LPRO Open Lending and Nebula ($1.7B), KLR Energy Rosehill Resources ($445M), Pershing Square Capital Management ($6.45B) and Crescent Acquisition and F45 Training ($845M).

Why utilize a SPAC?

Unlike traditional IPOs, a SPAC, offers a faster IPO process while mitigating risks present in long and costly acquisitions.  Not only that but utilizing a SPAC offers access to private investment and can potentially produce a higher sale price valuation, and so greater returns, making this an attractive opportunity for smaller companies and their investors.

Popularity of this business structure has ebbed and flowed since their inception in the 80’s but they are gaining popularity now due to their greater acceptance.  Companies that may not otherwise go public in today’s economy now have the opportunity.  With Investment banks and other highly experienced advisors involved, these transactions are fast becoming an attractive investment for long and short-term public investors. 

Conclusion

Going through a SPAC transaction can be an enormous burden on your operational, accounting, finance, and IT infrastructure, just when you are poised for accelerated growth.  Our team has actively participated in SPAC and other similar reverse merger transactions, as well as assisted in change due to accelerated growth.  We have game changing consultants experienced in SEC reporting, technical accounting, SOX,  general ledger close, and process redesign who can come in and just get it done.