Everything You Need to Know About Spac Mergers | A SPAC, or Special Purpose Acquisition Company, is an entity made purposefully to raise finances through an initial public offering (IPO). They do not operate commercially. Instead, they materialize to acquire or form a merger with an already existing company.
Investors build SPACs in specialized industries with the intent to make a deal within that designated sector. They typically construct with a specific acquisition in mind. However, a SPAC does not identify their target company, thus earning them the pseudonym blank check company. This ambiguity helps avoid divulging more information than necessary upon public market entrance. A SPAC merger can be a lucrative opportunity for an owner of a small business or private company.
Assurance for SPAC Sponsors and Targets
Financial reporting has shown that sale prices associated with a SPAC transaction are often higher than private equity agreements. The SPAC IPO process may also be quicker than a traditional IPO, thanks to the assistance of an experienced partner. The execution time of a SPAC merger averages only 3-6 months versus the usual year to year and a half time frame you can expect with traditional IPO procedure.
Without a SPAC, the public offering price is dependent on public market conditions at the time of your listing, whereas SPAC negotiation occurs before the transaction closes. Accordingly, a SPAC deal may offer more stability in a fluctuating market. Additional capital, streamlined publicity, and an added sense of price security can be appealing to investors and business owners. However, it is crucial to consider the unique risks associated with a business combination of this nature.
Assessing and Avoiding the Risks
A condensed IPO process can open your company up to lapses in financial diligence. The target company typically assumes the role of financial preparator. Use caution when fast-tracking SEC filings and other public company functions. Partner with the appropriate financial institutions such as an audit firm or underwriters. Conducting SPAC audits can help you ensure that your integration meets fair value and regulatory requirements. It is imperative to select reputable companies with a solid understanding of PCAOB standards and, ideally, a proven track record of SPAC involvement.
Currently, Marcum BP has the most extensive history of collaboration with special purpose acquisition companies. Curiously, it is also the only audit firm with a designated SPAC team in Asia, despite SPACs’ decades-long existence and the recent boom in popularity.
Facilitating Successful Transactions
The critical element of a successful merger process is attention to detail. Well-kept company operation records and financial statements can help facilitate success. Maintaining a paper trail from the registration statement filing to the closing transaction can be a formidable task, especially with third-party collaboration.
Establish an internal control program to make sure that your company remains thorough. Companies can retain check printing services, payment processing platforms, and document mailing services to help diminish the time and money spent on bookkeeping. Some organizations equip themselves to cover all three of the departments mentioned above depending on your specific needs, like Smart Payables. When conducting SPAC research, it can be fruitful to examine your streamlining options as well. Due to the fast-tracked nature of a SPAC deal, time is of the essence in every passing business day. Allocate your team’s efforts where they will be most constructive.
Special purpose acquisition companies claimed the majority of the U.S. IPO market’s growth in 2020. Last year, Business Insider reported that SPACs held a 6 million dollar lead over traditional IPOs, citing big-name underwriter Goldman Sachs. This alternative to the long-winded and often expensive traditional IPO has proven to be a worthwhile trend for sponsors and target companies alike. With proper preparation and execution, this type of merger has the opportunity to stimulate growth within the market and your bank account.
