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Key Takeaways | The Continuing Rise of The Spac: Where Does It Go from Here? [VIDEO]

The interest in special purpose acquisition companies (SPACs), also known as blank check companies, skyrocketed in 2020 with 250+ SPAC filings. This year has already outpaced last year with 350+ SPAC filings and nearly 450 SPACs currently active.

The sheer number of active SPACs means that several hundred need to move swiftly toward signing merger agreements, given that they have a time limit of 18 to 24 months to acquire a target company. However, the market shows that the number of acquisitions (or de-SPAC transactions) has slowed in 2021, putting pressure on those still on the lookout for a target. Additionally, as the US market becomes more congested, some SPACs are looking internationally for transaction opportunities.

What does this mean for the SPAC craze in 2021 and beyond? During our recent webinar, Partners Caitlyn M. Campbell, Harold C. Davidson, Ari Edelman, Eric Orsic and Mark S. Selinger discussed current issues, challenges and regulatory developments in the SPAC and de-SPAC market.

Below are key takeaways from the webinar:

SPAC Initial Public Offering (IPO) Trends

As compared to the first half of 2021, SPACs that launched their IPO in the second half of the year have offered investor-friendly terms (e.g., overfunded trust accounts (or issuance of founder shares to anchor investors), less time allotted to complete a business combination and better warrant coverage). Despite the high volume of SPACs currently seeking targets, they continue to find potential targets interested in entering into a business combination.

Navigating the De-SPAC Market

In addition to identifying and investigating promising business combination targets, SPACs are focused on structuring a deal that takes into account the competing interests of (1) the potential target’s shareholders and other stakeholders, (2) private investment in public equity (PIPE) investors and (3) the SPAC’s public investors. Target companies utilize various measures in determining whether a particular SPAC might be a good fit and evaluate SPACs based on the potential fundraising capabilities, as well as the operational, marketing or other value the SPAC and its sponsor can provide the target company. Target companies need to have confidence that the SPAC’s management team and advisors are capable of closing the deal, obtaining adequate PIPE financing or other fundraising commitments and minimizing redemptions by SPAC shareholders. In recent months, SPACs have experienced a tighter market for PIPE financing. In structuring deal terms (such as purchase price per share to be sold in the PIPE and the minimum cash threshold), parties face tension between the desire for deal certainty at the time the deal is announced and the desire to signal confidence to the market that the parties anticipate strong support from public investors after the deal is announced. In contrast to the deals that closed earlier in 2021, some SPACs recently opted to offer incentives to PIPE and/or public investors, such as warrants, improved pricing and/or price protection mechanisms.

Emphasis on Due Diligence

There has been an increased focus on due diligence in de-SPAC transactions. Although SPACs face time constraints and limited working capital, a thorough investigation into the target’s products, services, financials and operations is critical from both a general exposure perspective and a US Securities and Exchange Commission (SEC) enforcement perspective. The SEC is showing no signs of turning their attention away from SPACs and will likely continue to keep a close eye on the resulting public company’s financial disclosures following the business combination.

 

 

© 2022 McDermott Will & EmeryNational Law Review, Volume XI, Number 356
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About this Author

Partner

Caitlyn M. Campbell, a former US Securities & Exchange Commission (SEC) Enforcement Attorney, focuses her practice on representing clients in SEC investigations, securities class action and derivative litigation, and compliance matters. Caitlyn has extensive experience in matters involving potential violations of the federal securities laws, including accounting issues, various issues in the investment management industry, insider trading, anti-corruption and FCPA compliance, and whistleblower claims.

Prior to joining McDermott, Caitlyn...

617-535-3930
Harold C. Davidson Corporate Attorney McDermott Will & Emery New York, NY
Partner

Harold C. Davidson focuses his practice on complex business transactions, including private and public mergers and acquisitions; principal and private equity investments; securities offerings; joint ventures; restructurings; and structured finance arrangements. Harold also regularly represents and advises public and private companies in corporate finance and governance matters, and private equity and venture capital firms with respect to their investments in public and private companies.

Many of the transactions upon which Harold has advised have been cross-border in nature,...

212-547-5856
Partner

Ari Edelman focuses his practice on capital markets, including special purpose acquisition companies (SPACs), initial public offerings (IPOs) and other public and private equity offerings. Ari also has a wealth of experience advising public companies in their reporting obligations, corporate governance matters and other corporate matters. Ari has represented issuers, target companies, underwriters and placement agents in approximately 100 closed capital markets transactions. Ari is a highly sought-after advisor with respect to SPAC transactions in particular.

Prior to joining the...

212-547-5372
Eric Orsic, corporate, securities, attorney, McDermott Will, law firm
Partner

Eric Orsic is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Chicago office. Eric focuses his practice in the areas of mergers and acquisitions, and securities transactions and compliance.   Eric works with both public and privately-held companies to structure and negotiate business acquisitions/dispositions.  His public company transactional experience includes public equity and debt offerings, tender offers and going-private transactions.  Eric also serves as outside securities counsel to several public companies and advises on SEC compliance...

312-984-7617
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