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A knowledge center for investors and potential sellers addressing the complexities of special-purpose acquisition company mergers



SPACs: A hot topic for investors, acquirers and sellers

SPACs have become mainstream vehicles for raising capital alongside initial public offerings. Although the market has cooled from Q1’21 when 301 new SPACs raised $83.2 billion, 2021 is on pace to surpass last year’s record haul of $94.4 billion from 319 SPAC launches.1 The coming of age of these “blank check” entities—which exist solely to acquire other companies—provides another option for sellers, as well as an efficient way for private companies to tap public equity markets.

SPAC mergers aren’t simple, however, and understanding all their intricacies can be daunting. Most importantly, a company going public via a SPAC must meet the same extensive regulatory requirements as those taking an IPO path—only in a matter of a few months, not the year or two that a typical IPO can take. Selling to a SPAC can offer a quick and lucrative transaction for unlisted sellers, but requires a gaggle of complex challenges: vetting of potential SPAC suitors, tax structuring, public company readiness, sophisticated business forecasting and, often, systems upgrades. The more a company peels away at a SPAC merger, the more it’s likely to find “unknown unknowns.” This complexity is why KPMG has created the SPAC Intel Hub. 

Whether you’re a privately held firm that wants to consider a sale to a SPAC or an investor in a SPAC, you’ll find the KPMG SPAC Intel Hub a valuable resource that you will want to visit often.

Insights from the KPMG SPAC Intel Hub
Here, we provide a single portal to our constantly updated SPACs knowledge. Here, you will find concise answers to the questions that we get asked most frequently—and ones we think you should be asking.
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    The SPAC transaction lifecycle

    A SPAC has a typical lifespan of 18-24 months, but completing a merger with a SPAC can take as little as six months after the signing of an initial agreement. Learn more below about the key phases, activities and best practices to keep in mind when considering a SPAC merger. Across the phases, KPMG can provide cross-functional support for tax, diligence, accounting, modeling, IT systems and SOX.
    Key Pre-deal activities
    • Key Pre-deal activities
      +9 services
    • 01
      Explore liquidity options
      A private company can go public via an initial public offering, a direct listing or a SPAC merger. It should weigh the pros and cons of each option before making a choice.
    • 02
      Perform due diligence on SPACs
      A private company considering a merger with a SPAC should thoroughly probe the potential partner’s reputation, experience, ability to raise additional funds, etc.
    • 03
      Negotiate contingent considerations
      During the examination of a SPAC partner, consider its willingness to accept lower equity in the combined company and less dilutive warrant coverage in exchange for a lower upfront payment and future payments upon achievement of specific targets. Also discuss the SPAC’s willingness to compensate the target company’s expenses if SPAC shareholders fail to approve the merger.
    • 04
      Elect tax structure
      Choose an optimal legal entity structure from a tax perspective. This will largely depend on whether the target of a SPAC is a standalone C corporation or a partnership.
    • 05
      Finance debt
      A SPAC may arrange debt financing to acquire a target much larger than funds raised from its IPO or to cover for the gap in capital when original SPAC investors redeem their shares.
    • 06
      Finance PIPE
      A SPAC may also arrange private investment in public equity, or PIPE, from institutional investors to acquire a target much larger than funds raised from its IPO or to cover for the gap in capital when original SPAC investors redeem their shares.
    • 07
      Prepare marketing roadshow
      Typically, it is the responsibility of a SPAC to undertake roadshows to market the deal and find debt and PIPE financing, but a target company can also participate.
    • 08
      Compile Proxy / S4
      The proxy and/or a registration statement, such as Form S-4, is filed with the SEC when the merger is announced and must contain key disclosures, such as the target company’s historical audited financial statements and MD&A, and the combined company’s pro forma financial information.
    • 09
      Assess public company readiness
      Identify gaps in the target’s current ability to go public and operate as a public company and develop a readiness plan to address them. Gaps typically include tax structure and reporting, accounting records to report, SEC reporting, systems and processes, internal controls, investor relations, human resources and executive compensation.
    Key pre-close activities
    • Key pre-close activities
      +3 services
    • 01
      Complete Proxy / S4 and address SEC comments
      The SEC will review the proxy and registration statement before the shareholders’ vote to approve the SPAC’s acquisition. The initial round typically takes 20-30 days, and it may take 2-3 rounds to clear SEC comments.
    • 02
      Compile Super 8-K
      The financial information required includes the combined company’s pro forma statements and the target’s historical financial statements. The pro forma financial statements should reflect the actual fund flow of the merger, and the periods presented may need to be updated based on SEC reporting timeline.
    • 03
      Execute public company readiness plan
      Implement the public company readiness plan to address gaps identified in the readiness assessment. Tasks may include optimizing tax structure, establishing an audit committee as well as SEC reporting and investor relation teams, upgrading IT systems, streamlining processes and shortening the month-end close timeline, and documenting and implementing controls.
    Key post-close activities
    • Key post-close activities
      +3 services
    • 01
      File Super 8-K
      After the consummation of the merger, the combined company must file a Form 8-K within four business days.
    • 02
      Implement ongoing public company operations
      File SEC-required documents, such as Forms 10-K, 10-Q and 8-K, on a timely basis. Provide quarterly CEO & CFO certifications for SOX requirements. Conduct quarterly earnings calls and Q&A sessions with investors and analysts.
    • 03
      Explore strategies for growth
      Maximize shareholders’ value with plans for performance improvement, short- and long-term strategy development, and portfolio assessments to identify potential divestitures of non-core assets and/or acquisitions of value-added businesses.
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    Steps to ensure a successful SPAC merger

    In this video, we share 7 key tips to keep in mind as well as a case study that demonstrates one of the most common pitfalls.

    Our people

    Image of Patrick Ryan
    Patrick Ryan
    National Leader, Accounting Advisory Services, KPMG US
    Image of Shari Mager
    Shari Mager
    Partner, U.S. National Leader, Capital Markets Readiness, KPMG US

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    All data has been sourced from Capital IQ, and includes SPACs listed on the US exchanges. The data presented is indicative and may not be exhaustive.

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