The special-purpose acquisition company (SPAC) process demands significant attention and energy for all parties, especially the CFO of the target company. It is tempting to see the process of winning investor approval, communicating your story to potential investors, raising private investment in public equity (PIPE) funds, and timely completion of the transaction as the end of a strategic and monumental task—and it is. However, another set of challenges awaits just beyond, as the target company is launched as a newly public company.
In a traditional initial public offering (IPO), the company builds toward the first day of trading as a consequence of the pre-IPO process. A traditional pre-IPO company produces SEC-compliant audited financial statements, designs and implements systems to facilitate timely and reliable reporting, builds internal controls over financial reporting, validates processes critical to cybersecurity and information technology, and prepares critical filings for regulators and investor review.
The SPAC process involves many of these same hurdles, but the target company’s management must remain focused on executing the transaction first before tackling post-SPAC processes. Therefore, this post-SPAC work falls to the post-SPAC company and its officers, who must play “catch-up.”
A post-SPAC company must be ready with certain filings, processes, and policies in place just prior to the first day its shares are traded. And the company must also report accurate financials on time—depending on filing status, this could be in as few as 40 days after the end of its most recent financial quarter. These form the initial deadlines for the post-SPAC process.
Since no two post-SPAC companies are the same, the plan and workload will need to be tailored for each company, with likely many of the work streams running on parallel tracks. Each post-SPAC company must address a number of matters that can be broadly categorized into six work streams:
Finance and Accounting: Closing financial reporting and quarterly earnings and other financial disclosures on time.
Corporate governance: Corporate board oversight is essential prior to listing; a portion of the board must be independent and non-management, and board members need to understand their responsibilities and fiduciary duties from day one. Overall governance measures need to be in place throughout the organization.
Internal processes & controls: Even prior to reporting the first quarter of earnings as a publicly traded company, significant controls and processes need to be in place to meet regulatory requirements. These center around rules, often in the Sarbanes-Oxley (SOX) Act of 2002, to create internal controls and related policies that are aimed at safeguarding of assets, reliable financial reporting, and reducing the risk of fraud.
Information Technology (IT): With information being a crucial asset in the modern corporation, IT as the custodian and protector of this information has a front-row seat for major executive-level issues and discussions. But many organizations in the post-SPAC phase have comparatively bare IT organizations and capabilities in place.
Cyber: Related to IT, an organization’s cyber capabilities will be tested every day. But because so much of an organization’s operations and value is tied with its ability to protect data and maintain operations after a cyber threat is discovered, this capability can’t be delayed.
Tax: Tax is often central to financial reporting and transaction planning. The post-SPAC company can emerge in a much more complex tax situation than prior to the SPAC transaction. Many of these complexities relate to the resulting tax structure which is designed to accommodate both the legacy owners of the company and the shareholders of the SPAC.