Becoming a publicly traded company is a transformative process and entering the market via a SPAC transaction requires adequate preparedness. With the trend likely to continue, it’s probable many companies will consider this option. This begs the question, when is the best time to assess public company readiness?
Special purpose acquisition company (SPAC) transactions offer private organizations an alternative to a traditional initial public offering (IPO). However, involved parties are still required to comply with similar accounting and financial reporting requirements, often on an accelerated timeline. Given the timeline constraints, readiness activities mustn’t be delayed. As soon as the SPAC route becomes likely, companies should conduct an extensive analysis of their people, processes, and technology.
While it’s important to remain realistic, delaying analysis until the de-SPAC process could very well negatively impact the first few filings, as well as first-year compliance. Companies can be inclined to delay due to resource constraints or questions as to whether the transaction will go through. Despite these challenges, any gaps in talent, processes, internal controls, and/or technology must be identified and addressed before the de-SPAC transaction
Approach the Transaction Collaboratively
The success of a SPAC transaction not only depends on achieving timeline milestones, but also the relationship between the target company and sponsor—both of which should do diligence on one another. Important considerations to keep in mind when looking for a SPAC or sponsor include:
- Industry knowledge: Does the sponsor have a solid awareness of the market, as well as historical and future trends? Do they understand/is there agreement on how the product/service fits into that market?
- Public company experience: Does the sponsor have strong capital markets and years of experience? This will often be needed to balance out the lack of experience of the newly publicly traded company.
- Strategic alignment: Is there agreement on growth strategy and business objectives?
- Collaborative spirit: Is it more than a transactional relationship? Can both parties work well together over the course of the long-term?
Maintain Investor Confidence
Having a communication plan with an investor and public relations strategy is critical for confidence and optimal execution. While having defensible projections is assumed, it’s crucial to properly communicate the nuances of those projections. Companies must remain diligent and thoughtful when communicating timelines, risk factors, and variables that may impact execution. Setting reasonable expectations and pairing that with clear, consistent messaging to both investors and the market should be conducted even in advance of the de-SPAC.
Conduct a Risk Assessment and Scoping Exercise
Assessing public company readiness is not without SOX readiness considerations. Putting a plan in place, identifying who will conduct the formal assessment, and initiating that plan as soon as the business combination is complete is a key undertaking of public company readiness. By getting started early, you’ll have time to identify the controls, test them, and ensure there’s time to remediate if necessary.
It’s important to note that while process is a complex transformation and often diverts attention to activities such as ERP implementation, those activities should not delay the risk assessment and scoping exercise. Additionally, companies should avoid the temptation to skip these steps altogether and instead dive right into the current state documentation exercise. The assessment and scoping exercises not only help management formulate a plan for SOX readiness, but they also drive valuable discussions with the external auditors regarding company activities and at what point in time their efforts around ICFR will impact the company.
Hire the Right Advisors
As previously mentioned, resource constraints can dramatically impact readiness. Having a team of people who have been through the process, worked with the SEC, and have access to various resources (e.g., assessments, staffing, etc.) is highly valuable. The right team of advisors (bankers, attorneys, accountants, PR, etc.) can be the difference between success and failure; not only can they help address tactical day-to-day initiatives, but they can help plan for the unexpected.
MorganFranklin has a proven methodology to assist companies in successfully entering the public markets through acquisition by a SPAC (“blank check company”). By focusing on both the SEC reporting requirements and public company readiness, our services will enable a company to complete its transaction on time and to be prepared for life as a public company.