SPAC technical accounting and reporting considerations
Important things to know about SPAC merger reporting
Because of the growing success of SPAC transactions, many private operating companies are opting to merge with special purpose acquisition companies to raise capital as opposed to traditional IPOs. But while they may be popular, that doesn’t mean that SPAC mergers are an easier option. Due to the SEC reporting implications of SPAC mergers, there are a number of key matters private companies need to consider before moving forward.
For your consideration: SPAC technical accounting
The financial statement requirements and related SEC review process for a SPAC transaction are largely consistent with the requirements for a traditional IPO. Former SEC Chairman Jay Clayton recently discussed the increase in SPAC transactions in a television interview. He noted that SEC staff believe that investors who are voting on a transaction should receive the same rigorous disclosures that they would receive in a traditional IPO. Chairman Clayton further indicated that SEC staff are focused on disclosures of the compensation and incentives that go to a SPAC’s sponsors. When planning for SPAC transactions, entities should also be mindful of the following unique considerations.
- The SEC’s draft registration review process is generally not available for SPAC transactions.
- The SPAC and the target must work through the accounting for the transaction to determine (1) whether the SPAC or the target is the acquirer for accounting purposes (the “accounting acquirer”) and (2) whether the nature of the transaction is an acquisition or recapitalization.
- Pro forma financial information must be presented to reflect the accounting for the transaction.
- While the SEC review process for a SPAC is as thorough and rigorous as that of a traditional IPO, after the SEC has completed its review of a SPAC’s proxy or registration statement, there is generally a period (e.g., 20 days) during which SPAC shareholders decide whether to approve the transaction. Separately, investors must also decide whether they wish to participate in the combined company or redeem their shares in the SPAC.
- In addition to SEC requirements, the target’s management may have other reporting considerations related to its support of the transaction, such as assisting in the marketing of PIPE financing and securing additional funding for the transaction.
Will Braeutigam
