Private equity and SPAC readiness: 6 key considerations has been saved
Private equity and SPAC readiness: 6 key considerations
Preparing portfolio companies for a SPAC merger
The rise of special-purpose acquisition company (SPAC) transactions is pushing attention to the private equity (PE) space, where promising portfolio companies present opportunities for strong sponsor incentives and investor returns. But if PE managers want to make the most of SPAC opportunities, they may need to help their portfolio companies prepare for the road ahead.
How private equity fits into the SPAC revolution
The acceleration of SPAC transactions and the desire to complete deals with target companies means many venture capital or PE-backed portfolio companies may be public sooner than previously expected. Though the number of companies that are immediately ready for a SPAC transaction may be low, demand is high. The same is true for the advisers and other external service providers who are typically involved in a SPAC transaction.
Not all target companies are ready for the de-SPAC process that merges a private company with a publicly traded SPAC. They may have a promising business and an experienced management team but lack awareness of the key milestones and action items necessary to complete a deal. If PE managers are expecting to take advantage of SPAC opportunities, they may need to help their portfolio companies anticipate impediments.
Asking the right questions
PE managers need to understand a principle: Speed matters. The pace of SPAC activity is pressurizing the deal environment. PE firms should be careful not to let themselves, and especially their portfolio companies, get squeezed by the supply of capital into a process that affords little room for error or mistake. Consider as well that SPACs are shifting their gaze to international targets, where the challenge of executing a de-SPAC transaction is even more complex.
All PE firms need to be asking tough questions about the SPAC readiness of their portfolio companies. A checklist would include the following:
SPAC and private equity: Opportunity or competition?
Amid all these considerations, PE firms may need to think about how SPACs present additional opportunities to monetize their portfolio and become more competitive, since SPAC candidate companies may also be PE portfolio targets. The kinds of companies that attract PE funding and support may well choose the SPAC route instead. PE firms can make a compelling argument that SPACs can fast-track the public company launch, but it can’t replace the essential growth process that great PE managers design.
Explore our components guide for more.
This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional adviser.
Deloitte shall not be responsible for any loss sustained by any person who relies on this publication.
As used in this document, “Deloitte” means Deloitte & Touche LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of our legal structure. Certain services may not be available to attest clients under the rules and regulations of public accounting.
Copyright © 2021 Deloitte Development LLC. All rights reserved.