Special Purpose Acquisition Companies (SPAC) has been saved
Special Purpose Acquisition Companies (SPAC)
An alternative to a direct listing or initial public offering (IPO)
With the near doubling of mergers with US Special Purpose Acquisition Companies (SPAC) in 2020, there is a significant uptick in companies in Luxembourg and across Europe considering a similar route to accessing US or EU capital markets. Investors and management teams are trying to mitigate some of the challenges of traditional IPOs; in particular, market volatility around pricing and the significant investment of management time and cost.
We can support and advise companies that may be considering a SPAC transaction as their next step.
What is a US SPAC or EU SPAC?
A US SPAC is a shell company already registered with the US Securities and Exchange Commission (SEC) and listed on a US public market but has no existing operations. An EU SPAC, like a US SPAC, is a shell company with no existing operations, which is listed on an EU public market such as Euronext Amsterdam or the Frankfurt Stock Exchange. The SPAC uses its IPO proceeds to fund the acquisition of an existing private operating company (Target), usually within a defined period of 18–24 months. If the SPAC successfully completes an acquisition in this period, the Target succeeds the SPAC’s public filing status to become a public company.
Depending on the merger's structure, once effective, the Target may inherit the SPAC's reporting obligations and could be immediately required to file IFRS financial statements, US GAAP financial statements or be subject to Sarbanes–Oxley Act (SOX) requirements.
Although companies have used SPACs for decades as alternative investment vehicles, they have been gaining more attention from investors, sponsors and companies exploring US or EU listings, as investors and management teams try to mitigate the market volatility risks of traditional IPOs.
2020 was a record-breaking year for SPAC IPOs. This surge was driven by the influx of high-profile investors and management teams forming SPACs, coupled with an abundance of uninvested capital that had largely sat out the first half of 2020.
SPAC transactions come with their own set of unique challenges, and it is essential for management to have:
- An understanding of the risks associated with these investment vehicles;
- A comprehensive execution plan to meet the demands of an accelerated route to becoming public and the related increase in reporting obligations; and
- The people, processes, controls and technology in place to operate as a public company going forward.
How we can help
We, together with our colleagues in the US, have significant experience helping companies outside the US navigate the complexities and challenges of SPAC transactions, including:
- Assessing the transaction structure across governance, reporting, financial accounting and tax perspectives, and identifying the key risks across these areas that need managing;
- Supporting in the preparation of accounting analyses (such as who the accounting acquirer is) and with the conversion to IFRS or US GAAP;
- Providing guidance on relevant EU or SEC rules and regulations that may take effect, including timetables and reporting obligations that may result from different scenarios occurring during the transaction process; and
- Offering management proactive support to help them tackle challenges that arise as the transaction approaches completion and in navigating post-transaction requirements, such as quarterly reporting or internal controls (SOX).
Feel free to contact us to discuss EU or US SPACs and learn how we can help.
Further reading and listening
A short overview document outlining the SPAC landscape, trends, lifecycle and post-completion activities. This is intended to help CFOs gain an understanding of (1) the risks associated with these investment vehicles and (2) the need for a comprehensive project management plan to meet the demands of an accelerated merger timeline.
This Financial Reporting Alert goes into the details behind financial reporting requirements and SEC regulatory requirements for SPACs that are Domestic registrants. Please note that different outcomes may be achieved for organizations that can secure “Foreign Private Issuer” status.
This 1-hour DBriefs webcast hosted in September 2020 covers trends, transaction challenges and the keys to success. Presentation materials are available for download.
This episode of our M&A Views podcast series is available from a variety of online platforms. It not only covers the history of SPACs but also discusses how SPACs help private companies go public, key considerations for sellers, and why SPACs are poised to shape capital markets for years to come.
A transcript is also available.
Webcast SPACs—The Alternative IPO (webcast)
This webcast hosted in December 2020 covers what SPACs are, how to assess if you need one and how to undertake a successful SPAC listing.