How To Be a Favorable SPAC Acquisition: Five Key Areas of Consideration

What to consider—and questions to ask—to become a favorable acquisition target for special purpose acquisition companies (SPACs).

Becoming a public company through an acquisition by a special purpose acquisition company (SPAC) has increased in popularity over the last two years as an alternative to the traditional initial public offering (IPO) route.

Although existing for decades, stable company valuations during recent economic uncertainty have reinvigorated the prevalence of SPACs for companies to raise capital. Private companies looking to be acquired by a SPAC may benefit from effectively analyzing the current state of operations, information technology, and financial reporting processes against the various requirements for publicly traded companies to determine if they are adequately prepared for the quick transition. Once they go through an IPO, SPACs typically have between 18-24 months to seek a target company and complete the acquisition process, commonly known as “de-SPACing.”

Download the entire SPAC Readiness checklist here.

With the potential for immediate turnaround considered, target companies must consider their readiness to become a public company and effectively operate as such prior to the completion of the merger with a SPAC.

Download the entire SPAC Readiness checklist here, and consider the following areas when hoping to become a favorable acquisition target for SPACs from both a financial and overall operating perspective.

Internal Controls & Sarbanes-Oxley (SOX) Compliance

To protect your investors from fraudulent accounting activities during a SPAC acquisition or merger, you’ll need to assess your internal control environment and your ability to comply with SOX requirements. Try answering these questions in the checklist regarding internal controls and crossing off these action items to better evaluate your readiness.

Some questions to consider include:

  • Are policies and procedures for key areas of my business related to financial reporting formally documented and reviewed periodically?
  • Has management established clear lines of reporting and an effective tone at the top? 
  • Are periodic assessments performed to identify risks relevant to my organization’s achievement of objectives?

 

Accounting and Tax Considerations

The transition to a public company can impact the tax and accounting department of your target company. Use these considerations and checklist to be one step ahead when it comes to assessing the current state of your overall accounting and tax-related procedures.

Some questions to consider include:

  • Are my tax and accounting departments adequately prepared for the transition to a public company?
  • Do relevant personnel maintain the competence to apply and adhere to more complex accounting standards?
  • Do my current policies and procedures account for highly scrutinized areas such as revenue recognition, lease accounting, and equity-based compensation?

 

Financial Statement Preparation

Assessing the financial statement preparation procedures of a target company is one piece of the financial health puzzle. Read more in the checklist about what questions to ask and what action items to take when assessing your company’s procedures related to the preparation of financial statements.

Some questions to consider include:

  • Are my company’s financial statements prepared in compliance with U.S. Securities & Exchange Commission (SEC) reporting requirements?
  • Do my company’s financial statements include the required level of disclosures, footnotes, management discussion and analysis (MD&A), etc.?
  • Is my company prepared to develop pro forma financial information in accordance with the future SPAC transaction?

 

Compliance with Required Filings and Registrations

AICPA, PCAOB, and SEC, oh my. Converting audit standards and considering various independence rules can be a challenge. Learn more about considerations as your company prepares for a SPAC acquisition and the associated required filings.

Some questions to consider include:

  • Have we converted the audit of our financial statements from under the AICPA standards to under PCAOB standards?
  • Is our auditor a PCAOB-registered public accounting firm that is independent under the SEC and PCAOB independence rules?
  • Is my company prepared to complete the necessary registration statements?

 

Digital Solutions

Digital solutions are often viewed as ‘nice-to-have;’ however, this is an area that allows companies to do more with less and provides the ability to scale and meet the demands of a public company. When assessing overall company operations in preparation for a SPAC acquisition, keep these questions in mind.

Some questions to consider include:

  • Can my current business practices, related to accounting and finance functions, be enhanced with robotics process automation (RPA) or artificial intelligence (AI)?
  • Are key areas of my business plagued by manual and inefficient processes?
  • Is my data securely stored?

 

To learn more about EisnerAmper’s SPAC Services, click here.

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