Search

SPACS MEET SOX – WHAT’S NEXT?

Updated: Oct 31, 2021



The rise of Special Purpose Acquisition Companies, or SPACs, has been the trendiest investing trend. Although 2020 was expected to be the year of SPACs, the initial public offerings (IPOs) of SPACs in Q1 2021 surpassed the entire year of 2020. SPACs raised $88.5 billion in cash from IPOs in the first three months, about 22 times more than the $4 billion raised in 2020. There were 320 blank-check firms that went public internationally during the first quarter, which was ten times higher than the same quarter last year.

In addition, despite certain challenges that SPACs have faced in the second quarter of 2021, such as a more competitive PIPE financing environment and increased SEC scrutiny, the SPAC market with over 350 IPOs done through Q2 2021 and over $102 billion in gross proceeds raised, the market remains active.

Source: www.duffandphelps.com


The number of initial public offerings (IPOs) was higher in the third quarter of 2021 than in any other third quarter in the previous 22 years. The number of IPOs in Q3 2021 increased by 20.6 percent from Q2 2021. Despite this rise, the proceeds raised in the third quarter of 2021 ($49.7 billion) were approximately 19.2 percent lower than those raised in the third quarter of 2021.


Source: auditanalytics.com


SPAC and SOX – An overview


A Special Purpose Acquisition Company Initial Public Offering (SPAC IPO) seeks funds to merge with a private company in order to become public. The SPAC, also known as a Blank Check Company, is generally managed by seasoned private equity, venture capital, and asset management experts with experience purchasing and selling businesses.


The Sarbanes-Oxley Act of 2002 was enacted by the United States Congress to protect customers and the broader public from firms that act deliberately or recklessly. Following SOX compliance criteria are not only required by law, but it is also best practice for a more ethical and secure business. Implementing SOX financial security measures is not only the ethical thing to do, but it also helps to guard against data security risks and assaults.


SPAC: The Lifecycle and Timeline


Understanding the unique development of SPAC operations and stages is one of the keys to SPAC investment.


Initiation of SPAC

In the prospectus, the SPAC will frequently indicate that they want to narrow their search for a target to a specific sector or area of emphasis. Sometimes the management team has considerable knowledge or contacts in that sector, and other times they believe it's an area where they can gain a competitive advantage through operational improvements. In any case, the SPAC is not required to locate a target in that region of emphasis, but it frequently does.


The SPAC - Initial Public Offering (IPO)

Soon after the SPAC is formed, the business will prepare an initial public offering (IPO) for investors, which will be detailed in a prospectus. This public sale permits the SPAC to raise funds that will be utilized to acquire a target firm.


Looking for a Target


The SPAC may begin looking for a target company to buy once the funding is secured through the IPO. At this point in the SPAC's life cycle, little information will slip out while the SPAC team works in secrecy to choose a target.


However, the SPAC does not have an infinite amount of time to select a target since investors do not want their money to be locked up eternally. The prospectus specifies how long the SPAC has to execute a combination — typically, 24 months, although this can be extended or decreased.


SPAC IPOs Versus Traditional IPOs


If you're considering going public, one of the first considerations you'll have to make is whether to go through a regular IPO or a special purpose acquisition company. See the high-level benefits and drawbacks of each option and receive assistance with navigating the differences.


SOX readiness Before Your SPAC Merger


The formerly private firm must be able to fulfill public company reporting and governance responsibilities when the merger is completed. SOX compliance—effective disclosure processes and controls, including internal controls over financial reporting—is one of those requirements (ICFR).


As a result, installing a solid controls management system should be part of the planning process prior to the shareholder vote. Ideally, a SOX solution in place prior to merger approval— should be prepared to perform like a public business before the opening bell on your first day as a public company.


Meeting SOX compliance standards will be a critical component of public company preparedness. The absence of a developed compliance program can have serious repercussions.


Investing in SOX preparedness early on benefits all SPAC parties, from the sponsor to the target business to the investors. Get ahead of the game by implementing a tried-and-true SOX solution. Find a system that can also assist you to manage the many SEC reporting requirements—all in the same environment and with the same data sets.

12 views0 comments