“The one regret I have is not investing more in the development of our finance function early on.”
So said a chief financial officer who, after completing a special-purpose acquisition company (SPAC) merger, realized that his company was not as prepared for the rigors and stresses of life as a publicly traded entity as it should have been. Unfortunately, it’s an epiphany too many CFOs have after the transaction is announced or, worse yet, closed.
Despite recent negative press, SPACs continue to draw record levels of investment and copious amounts of attention. However, the SPAC landscape is changing quickly. The Securities and Exchange Commission is tempering the market with statements about accounting treatments and heightening scrutiny regarding liability protection for what some consider overly optimistic projections by target companies.
With those challenges in mind, sponsors must ensure that an acquisition target is adequately resourced and, from the onset, that the investment diligence process has the structural and technical resources required to face the transparency, pressure, and intensity of life as a publicly traded company.
It sounds like an overwhelming transition, but the following 10 tips can help CFOs successfully navigate both the “going public” phase in a SPAC merger and, even more importantly, the “being public” phase once the merger is closed.
1. Perform a thorough public company readiness assessment to identify critical issues early and establish a realistic timeline based on proxy requirements, specific business issues, and the time needed to prepare registration information and operate as a public company.
2. Choose tactical and knowledgeable advisers to guide you through the “going-public” process, ensure regulatory compliance and optimal transaction structure, and prepare the company for life as a public registrant.
3. Plan enough time to perform Public Company Accounting Oversight Board audit uplift procedures on the annual financials (including auditor independence) and review quarterly financials required in the Proxy/Form S-4/Super 8-K filings ensuring timelines are well understood regarding impacts from financial statement staleness dates.
4. Build forecasting tools and processes to confidently report, forecast, and ensure credibility with investors. To be successful, companies must look beyond the transaction close to the first earnings quarter, showing investors that management can successfully and consistently execute on its business plan to meet guidance.
5. Establish a strong project management function to implement a project plan, ensure proactive issue identification, monitor progress, identify workstream interdependencies, and manage communication to keep the transaction on track.
6. Determine the transaction structure at the beginning of the process to prevent changes that could cause significant delays while the legal, tax, and financial reporting implications are identified and considered.
7. Commence a parallel workstream to prepare the organization to operate as a public company at the start of the transaction process, considering corporate governance, internal controls/Sarbanes-Oxley compliance, compensation strategy, investor relations, and board composition.
8. Reimagine the company’s departmental organizational charts and growth initiatives necessary to achieve public company ambitions, ensuring finance/accounting, legal, and IT are appropriately resourced to support rigorous regulatory and investor demands. That may require a re-budgeting exercise, bringing in a larger audience of department heads and leaders across the organization to align growth expectations with operational needs.
9. Review the financial close process and optimize technology to ensure the business can report and forecast timely and accurate financial information on strict reporting deadlines. That may entail new systems, processes, and controls — particularly in companies reporting non-GAAP metrics and key performance indicators, where data can reside outside of the general ledger system.
10. Be flexible. Something will inevitably come up that causes delays in the timeline or a change in management’s focus. Whether it’s an audit issue or SEC comment, merger/PIPE negotiations, departure of a key employee, a macroeconomic event, or a business acquisition, constant communication among stakeholders and advisers will help prioritize critical steps and minimize risk.
Investors’ continued appetite for SPACs and the opportunity for sponsors and owners to profit from successful transactions have driven a record level of activity. However, as the SPAC market evolves, the requirements and stakes for target companies to execute against their plans will be what determines whether SPACs are here to stay or just another fad. Ensuring companies have the right team and the right plan in place from the start will be what elevates the prospect of long-term prosperity.
Shauna Watson, managing director, and Barclay Stanton, director, are both with Accordion, the private equity-focused financial consulting and technology firm.