What Companies Need to Know Before Doing a SPAC

What Companies Need to Know Before Doing a SPAC

by Dean Quiambao, Todd Bishop, David Greenamyre
April 20, 2021

Special purpose acquisition companies (SPACs) have grown in popularity as a real alternative to IPOs. By fast-tracking the path to becoming a public company, these mergers allow private companies to access capital and secure investors through private negotiations.

If you’re considering this path for your company, here are some key points to consider. (For a more in-depth discussion, check out our recorded webinar, Getting on the SPAC Track: 2021 Outlook.)

What Makes SPACs Attractive

A SPAC is a blank-check corporation.  In other words, it’s not an operating company; it’s essentially a shell company set up by investors with the sole purpose of raising money (through an IPO) to eventually acquire another company.  And that other company will become the surviving publicly traded, operating company.

Though going public is not the end game of a company, it’s the start of a journey to profit from your balance sheet. This is why 2020 saw record levels of closed SPACs and they continue to be a growing trend year-to-date.

Public Market Access

In a traditional IPO, companies have to wait a couple of years for their financials to show that they can go public. With a SPAC, a company that’s taking off and has a path to profitability doesn’t need to wait that long. They can find a shell company to merge with and access a set of benefits that include:

  • Capital funding
  • Greater branding and market awareness
  • Liquidity for shareholders

Certainty on Return

If the SPAC merger is not completed within a specific time frame, the SPAC has to de-list from the exchange or start the entire process over – a big incentive to get it right the first time. SPACs typically have 18-24 month to acquire a company. Other reasons why SPACs offer certainty on return are:

  • Clear upfront terms
  • No IPO “windows” or constraints
  • Option to sell stocks and keep warrants


Flexibility comes from the fact that SPAC transactions are mergers, not IPOs in the traditional sense. SPACs change the conversation by allowing private companies to have direct discussions with investors. And with this type of partnership, the private company hopes to achieve a better valuation and outcome for its original investors.

This responsive negotiation process offers these benefits:

  • Increased speed to market
  • Opportunity to raise more cash for merger closure
  • Boost in validation to public investors who may be inherently skeptical

Key Steps of a SPAC Transaction

Many lawyers, accountants and investment banks don’t have a lot of experience navigating and advising clients on SPAC scenarios. Understanding the play-by-play is key to keep your fees low and protect the cash that will come over. These are the common steps for a SPAC transaction:

  1. Choose an investment banker to act as your broker. They’ll help you figure out what you’re looking for in a SPAC partner and how much money you need.
  2. Talk to the SPACs that meet your criteria. This is a courtship process. They’ll tell you why you should want them. You tell them why they should want this deal.
  3. Draft the letter of intent (LOI). Once you’ve picked a SPAC and agreed on the merger, there’s a lot of flexibility on the LOI. Your investment banker will advise you on what this letter should include and how to put your private investment in public equity (PIPE) transaction together.
  4. Financial statement preparation. While negotiations are taking place, your accounting and tax teams should be working to prepare your financial statements to meet the stringent Public Company Accounting Oversight Board (PCAOB) standards.
  5. Submit SEC filings. You’ll submit these to the SEC and hear back from them within 30 days. There may be some back and forth, depending on how many questions you get from the regulators. After you answer all of them, the SEC will declare your SPAC effective.
  6. Complete the merger. Once effective, you’ll have the SPAC meeting, where you vote to do the merger. The merger closes a few days later, and you’re officially a public company.

Who To Have on Your SPAC Team

Because SPACs increase your speed to market, it’s critical that you have the right team to prepare for the opportunities that SPACs provide and ensure a successful transaction.

From technical accountants to law firms with SEC partners and a board of directors that meets corporate governance requirements, your team will manage a lot of important matters while you’re still closing the merger. These include:

  • Handling quarterization of tax provisions and PCAOB tax provisions
  • Considering tax receivable agreements for legacy shareholders in an Up-C or Up-SPAC transaction 
  • Cleaning up your equity plans and/or drafting new equity plans
  • Preparing for the PIPE
A complete team for a SPAC transaction includes these members:
  • External experts and advisors
    • Underwriter
    • Banker
    • Accountant
    • Law firm
  • Independent Board Members, including the Audit committee chair 
    • Internal audit professionals
    • SOX compliance advisors
  • Internal legal counsel
  • Internal IT
  • HR
  • Controller
    • SEC manager
    • Technical accountant
    • Accounting manager
    • FP&A manager
  • Investor relations advisor

What Happens After the Transaction Closes

We cannot stress this enough: A SPAC is not an IPO; it’s a merger. Once the SPAC transaction closes, this merger means different things in terms of the management team, legal expenses and individual investors, but the surviving issuer needs to be ready to operate as a public company on day one.

Management Team

The closing of the merger means the acquisition of your private company by a SPAC team that will become part of your company’s Board.  As such, you need to make sure you’ve found the “right fit” and that you’re aligned with the sponsors on expectations for who will lead the surviving entity going forward post transaction.

Legal Expenses

Once the deal closes, the SPAC covers fees and legal bills. If the deal doesn’t go through, the private company is responsible for any bills that come from their side of the deal. And if there is a PIPE, most of the fees are deducted from there, much like they would be in a traditional IPO.


When the SPAC announces a merger, investors have a redemption option. They can redeem their common shares and keep the warrants to eventually trade them in the market. If the merger is not completed, the SPAC liquidates, and the IPO proceeds are returned to the individual investors.

Audit Tips for Your SPAC Transaction

If you’re looking to complete a SPAC transaction in the next six to 12 months, you need to start working on audit preparedness. It’s not uncommon for private companies to have staffing gaps in finance, so this is the time to bring in a reliable accounting team to make sure your books meet PCAOB public company audit standards and you have audit internal controls.

Prior to a SPAC transaction, internal controls should be reviewed by management for SOX Compliance readiness, and your external auditors will seek to understand your control environment for the pre-filing PCAOB audits. An accounting team prepares your financials for both of those audits.

It’s important to find an accounting partner that can be your advocate throughout the process. This ensures that you have an audit readiness strategy with rigorous documentation in place, while making the journey smoother between your company and the auditors.

After the transaction, your accounting partner transitions their role to help you navigate Sarbanes-Oxley compliance in time for your first annual audit as a public company.

Test Your SPAC Readiness

Ask yourself these questions to determine if a SPAC transaction may be right for you:

  • Are we ready to be a public company?
  • Have we considered a traditional IPO and other alternatives?
  • Are we targeting the right SPAC?
  • Have we put together the strongest team for this merger?
  • Do we have experienced advisors?

Still not sure about your next step? Complete our free SPAC Readiness Survey to gauge the readiness of your organization.

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