What’s so special about SPACs?

An alternative to a US initial public offering (IPO) or direct listing

With the near doubling of mergers with US Special Purpose Acquisition Companies (SPAC) in 2020, there is now a significant uptick in companies in the UK and across Europe considering a similar route to accessing US capital markets as investors and management teams try to mitigate some of the challenges of traditional US IPOs; in particular market volatility around pricing and the significant investment of management time and cost.

Our experienced US capital markets team based in London can support and advise companies outside of the US who may be considering a SPAC transaction as their next step.

What is a SPAC?

A SPAC is a shell company already registered with the Securities and Exchange Commission (“SEC”) and listed on a US public market but that has no existing operations. It uses its IPO proceeds to fund the acquisition of an existing private operating company (Target), generally within a defined period of 18-24 months. If the SPAC successfully completes an acquisition in this time period, the Target succeeds the SPAC’s public filing status to become a public company. 

Depending on the structure of the merger, once effective, the Target may inherit the reporting obligations of the SPAC such that it could be immediately required to file US GAAP financial statements or be subject to SOX requirements.

Market trends

Although SPACs have been used for decades by US companies as alternative investment vehicles, they have gained increased attention for US and foreign companies exploring US listings in recent years, as investors and management teams try to mitigate the market volatility risks of traditional IPOs.

2020 and 2021 were record-breaking years for SPAC IPOs. The surge was driven by the influx of high-profile investors and management teams forming SPACs, coupled with an abundance of uninvested capital. The volume of SPAC activity slowed in 2022 from record highs seen in 2020 and 2021 consistent with the wider slow down in traditional IPO markets. Despite this, there are still a large number of SPACs looking to complete an acquisition, with UK and European companies being targeted by existing SPACs as potential acquisitions.

Management considerations

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 forwards.

How we can help

We have significant experience helping companies outside the US navigate the complexities and challenges associated with SPAC transactions, including:

  • assessing the transaction structure across governance, reporting, financial accounting and tax perspectives, and identifying the key risks across each of these areas that need to be managed;
  • supporting in the preparation of accounting analyses, such as who is the accounting acquirer, and with conversion to US GAAP;
  • providing guidance on relevant SEC rules and regulations which may take effect, illustrating which timetable and reporting obligations may result from different scenarios occurring during the transaction process; and
  • offering management proactive support to help them deal with challenges that arise as the transaction approaches completion and in navigating post-transaction requirements, such as quarterly reporting or internal controls (SOX).

Further reading

CFO considerations for SPAC transactions
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. 

Accounting and SEC Reporting considerations for SPAC transactions
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 organisations which are able to secure “Foreign Private Issuer” status. 

CFO checklist for SPAC transactions
A short overview document outlining SEC reporting and accounting considerations that can help CFOs plan for successful SPAC transactions.

Succeeding in uncertain markets – UK Equity Capital Markets Summer 2022 update
This Equity Capital Markets update covers a range of hot topics including global macroeconomic trends, results of the Deloitte UK Q2 2022 CFO Survey and discussion of the global market for SPACs.

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