In March 2022, the Securities and Exchange Commission (SEC) proposed sweeping new rules to regulate the disclosures and liabilities associated special purpose acquisition companies (SPACs). The proposing release is available here. The proposals were aimed at enhancing disclosures and liabilities in connection with SPAC IPOs as well as the subsequent business combinations (De-SPAC Transactions) between SPACs and private operating companies.
Continue Reading Reverberations Felt from SEC’s SPAC Proposal Even Before Rules Are Adopted
[Webinar] Lessons Learned from the Trenches of a SPAC and De-SPAC
Special purpose acquisition companies (SPACs) continue to pique investor interest as an attractive mechanism through which a private company can raise growth capital and become a publicly traded entity. As of June 2021, 330 SPACs have raised nearly $105 billion, a significant jump compared to previous years, according to SPAC Research. Further, SPACs and de-SPAC transactions are on the radar of the Securities and Exchange Commission which continues to consider investor protection measures.
Please join Bass, Berry & Sims and J.P. Morgan on September 14 at 11:00 a.m. Central for a complimentary webinar exploring the continued interest in the use of SPACs and lessons learned from the trenches. Bass, Berry & Sims Private Equity Chair and Healthcare Private Equity Team Co-Chair, Ryan Thomas, will lead a discussion with panelists Jay Knight, Member and Capital Markets Team Chair at Bass, Berry & Sims and Eric Rabinowitz, Managing Director and Healthcare M&A Co-Head at J.P. Morgan who will share their first-hand experiences. Speakers will cover the following topics:
- History of the SPAC and de-SPAC structure.
- Advantages and disadvantages compared to a traditional IPO or M&A transaction.
- Rise in popularity of SPACs in healthcare sector.
- Potential private investment in public equity (PIPE) financing considerations.
- De-SPAC transaction lessons learned.
Register for this webinar here.
Continue Reading [Webinar] Lessons Learned from the Trenches of a SPAC and De-SPAC
Popularity of SPACs in Healthcare Sector
I recently discussed the popularity of SPACs/de-SPAC transactions in the healthcare sector in an article featured in the Health Care M&A News publication. The rise in these types of transactions can be attributed to the market during and coming out of the COVID-19 pandemic.
Speaking to the attraction of a de-SPAC transaction, I stated “There’s more deal certainty, pricing is discovered sooner, and you have a long-term investment partner in the form of a SPAC sponsor. You effectively do the roadshow before the transaction is announced.”
I went on to add that I believe SPACs will remain a popular option for the foreseeable future. “There’s a lot of liquidity in the market and investors want to do something with it. The SPAC transaction isn’t going away anytime soon as there are still over 400 SPACs looking for a target. Moreover, the SPAC structure will likely continue to evolve over time as investors, sponsors and targets learn what works and what doesn’t work. While the froth may be coming off the SPAC market somewhat, that may ultimately be a good thing if the markets stabilize and what is left is another long-term viable path for companies to access the public markets.”
Hot SPAC Market Increases SEC Scrutiny and Litigation Risks
The market has seen a boom in the last two years for emerging companies going public through the use of special-purpose acquisition companies (SPACs). SPACs are attractive vehicles for allowing a private company to gain quicker access to public capital and avoid the traditional initial public offering (IPO) process. A SPAC starts as a public company through a traditional IPO but has no operations. The SPAC raises public funds under the premise that it will use those funds to find a target private company in which to invest. Once the target is identified, the SPAC goes through a business combination transaction (called a de-SPAC transaction) whereby the SPAC and private target engage in a merger transaction, with the result being the target survives as a public company.
The recent dramatic increase in using SPACs, however, has faced increased scrutiny. More recently, this trend has raised the attention of the U.S. Securities and Exchange Commission (SEC) along with plaintiff stockholder class action law firms. Directors and officers (D&O) insurance carriers are also adjusting their premiums and policy terms to account for these increased risks in using SPACs. Such rising concerns are only heightened by recent news reports of gaps in certain deals between returns for insiders versus later investors who suffer losses after a company becomes public via a SPAC.
This post highlights recent SPAC-related issues raised by the SEC and litigation filings, including potential conflicts with SPAC sponsors, accounting controls for targets, and the financial projections companies use when attracting support for a SPAC transaction. SPAC sponsors and potential SPAC target companies should be aware of these developments as they consider the booming SPAC market. Notwithstanding these headwinds, it is likely the SPAC market (particularly the de-SPAC market) will continue to be strong in 2021 as valuations continue to be attractive and given the reality that so many SPACs are in the market competing for targets.
Continue Reading Hot SPAC Market Increases SEC Scrutiny and Litigation Risks
WEBINAR: Raising Capital through a SPAC Combination: Nuts and Bolts of the “De-SPAC”
Growing in popularity, special purpose acquisition companies (SPACs) continue to pique investor interest as an attractive mechanism through which a private company can raise growth capital and become a publicly traded entity. In 2020, the number of SPAC IPOs quadrupled from 2019 and 2021 is currently outpacing 2020 activity.
Please join Bass, Berry & Sims and Perella Weinberg Partners on March 4 at 11 a.m. Central for a complimentary webinar exploring the ins and outs of the SPAC and de-SPAC process. Bass, Berry & Sims attorney Jay Knight will lead a discussion with panelists Scott Ellyson, CEO at EQ Health Acquisition Corp. and Nikhil Menon, Managing Director at Perella Weinberg Partners, as they share their first-hand experience with this type of transaction. Speakers will cover the following topics:
- Overview of the SPAC market structure and trends.
- Advantages and disadvantages compared to a traditional IPO.
- Factors involved in the SPAC lifecycle.
- Potential PIPE considerations.
- De-SPAC transaction considerations.
Who Should Attend?
- Private company executives and directors considering capital raising and IPO alternatives.
- Private equity fund managers and portfolio company executives considering whether to become a SPAC sponsor and/or engage in a de-SPAC transaction as an exit strategy.
- In-house counsel at the above institutions.
- M&A advisors.
- Other interested professionals and advisors.
Recent SEC Comment Letter Looks Under the Hood at SPAC Merger Diligence
You have undoubtedly read about the continuing popularity of special purpose acquisition companies (SPACs). According to SPACInsider, year-to-date there have been 242 SPAC IPOs, with an average IPO size of $334.9 million. This is remarkable as the next highest year was 2019 when there were 59 SPAC IPOs with an average size of $230.5 million. See the chart below to show the 2020 spike.
As a refresher, SPACs are public shell companies (i.e., blank check companies) formed to use their IPO proceeds to acquire a private company via merger, share exchange, asset acquisition, reorganization or similar business combination within a specific timeframe, usually 18-24 months. A SPAC structure essentially creates another mechanism through which a private company can go public, along with a traditional firm commitment underwritten offerings, direct listings (becoming more popular), and others.
SPAC Mergers with Private Companies
The focus of this post is on the back half of the SPAC life: the SPAC merger with the private company. SPACInsider reports there are approximately 228 SPACs that have completed their IPO and are currently searching for private acquisition targets to take public. Since most of these SPACs will need to find a target in the next 18-24 months (or less), there will be high demand for private companies that have the maturity, growth prospects, experienced management and operations in place to function as a public company.
Continue Reading Recent SEC Comment Letter Looks Under the Hood at SPAC Merger Diligence