Special purpose acquisition companies (SPACs) have been around for a long time but it’s only recently that they’ve become more popular. A SPAC has no commercial operations and is formed with the purpose of raising capital through an initial public offering (IPO) with the intention of acquiring an existing company. Between January and August 2021, SPAC IPOs raised a large amount of funds with the value of the funds surpassing 100 billion U.S. dollars, according to Statista. SPACs may be more popular these days, but they still come with certain challenges and rewards.
The benefits of merging with a SPAC
Taking a company public is a major milestone, and one that can be made a bit easier with the help of SPAC merge. Below are three benefits your company could experience by merging with a SPAC.
Going public through an IPO often produces a volatile stock price. A SPAC helps a company avoid some of the general marketing volatility by initially agreeing on the valuation of the acquired company before the business combination. This way the SPAC avoids negotiating with underwriters on the initial offering price.
SPAC target companies are usually in the position to negotiate terms for the future of their business. If you want to maintain some form of control and discuss management terms after the companies are combined, you have the ability to do this before the merge. Of course, if you’d rather take a liquidity exit, that’s another option that can be discussed.
SPACs are unique in the way they handle IPO proceeds. SPACs take the proceeds from the IPO and place them in an interest-bearing account. The money in the trust account can later be used as capital for the company as the business grows.
5 Tips for a successful SPAC transition
Below are five important tips for navigating a SPAC transition if your company is planning to merge with a SPAC.
1. Complete a readiness assessment
Perform a readiness assessment before partnering with a SPAC to ensure your company is ready to go public. By looking ahead, you can identify vital issues that may hold up the IPO process and you can create a realistic timeline needed to prepare your business to become a public company.
2. Develop a reliable project management structure
Create a project management plan for the SPAC transition. Identify potential issues, determine who will monitor progress, and identify workstream responsibilities. Preparing your team with a SPAC transition plan will help the acquisition run smoothly and keep the transaction on track.
3. Prepare to operate as a public company
Taking a company public requires a number of changes within the organization. Everything from governance regulations, salary adjustments, investor relationships, and more need to be assessed and adjusted to fit the new public company structure.
4. Rework organizational structures
The departmental structure you used for a privately held company may not be feasible within a public company. Review organizational charts to make sure the right leaders are in place and ensure you don’t need to develop new executive roles. In addition, reflect on the company’s growth initiative to see if it matches the new public image you’re trying to create.
5. Be flexible
Timeline delays are inevitable so it’s important to stay flexible throughout the SPAC transition. Don’t let setbacks such as audit issues or ongoing PIPE negotiations shift your focus from the overall goal of merging with a SPAC. Business is often unpredictable, and a SPAC transition is no different. As long as you keep communication with stakeholders and advisors open, however, you’ll be able to keep the big picture in mind and successful navigate this challenging time.
Trust your advisors and the preparedness of your business while assessing the viability of a SPAC. Remember, merging with a SPAC is just one option companies have for an IPO and acquiring greater liquidity. Before deciding to partner with a SPAC, be sure to follow the five tips above and ensure your company is fully prepared to go public. As long as you have the right teams and the right plans in place ahead of time, you’ll be setting yourself up for long-term success.
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